Sequent Scientific Limited (NSE: SEQUENT) Q2 2025 Earnings Call dated Nov. 14, 2024
Corporate Participants:
Abhishek Singhal — Head of Investor Relations
Rajaram Narayanan — Managing Director
Saurav Bhala — Chief Financial Officer
Hari Babu — Whole Time Director and CEO
Analysts:
Hrithika — Analyst
Nikhil Shetty — Analyst
Bharat Sheth — Analyst
Unidentified Participant
Kaustav Bubna — Analyst
Prashant Kumar Hashiwala — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to SeQuent Scientific Limited Q2 and H1 FY ’25 Earnings Conference Call. [Operator Instructions] 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, Del. A very good morning to all of you, and thank you for joining us today for SeQuent Scientific’s earnings conference call for the second quarter and half year ended financial year 2025. Today we have with us Mr. Rajaram, MD and CEO SeQuent Scientific; Dr. Hari Babu, Whole Time Director and CEO, Viyash Life Sciences; Saurav, CFO SeQuent and Ramakant, CFO Viyash 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 presentations which have been uploaded on the 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 Relations team. I now hand over the call to Rajaram to make his opening remarks.
Rajaram Narayanan — Managing Director
Thank you, Abhishek. Good morning, everyone. A very warm welcome to everyone on the call for the quarter two FY ’24, ’25 results. This is a significant quarter update as we share the progress on the performance of SeQuent and also update you on the strategic merger with Viyash Life Sciences. I am delighted to be joined on the call by Dr. Hari Babu, Whole Time Director and CEO of Viyash. And also joining on this call is Saurav, our CFO of SeQuent and Ramakant, CFO of Viyash.
We are now halfway through this financial year, and I am happy to share that we continue to improve our performance in most markets and businesses. Coming to the performance of the quarter, in quarter two FY ’25, our consolidated revenues came in at INR368.6 crores during the quarter, which translates to a revenue growth of 6.6% when compared to the same quarter last year, that is quarter two FY ’24. At the end of the first half, revenue stands at a healthy 11.7% growth versus the first half of last year. This growth continues to be quality growth which is seen in the margin and EBITDA numbers.
If you look at the EBITDA pre-ESOP numbers for this quarter, it came in at INR44.7 crores which represents nearly a 70% growth over quarter to last year. And when we consider the first half of the year, the EBITDA comes in at INR93 crores which represents 160 plus percent growth over the first half last year. So, we are trending well not only in terms of consistent improvement but also in line with the broad guidance that we have given.
While Saurav will go into more detail, I will share some qualitative highlights and more details are of course available in the investor presentation. When we look at the external factors, there is always the geopolitical and macroeconomic aspect to keep in mind. We have a strong presence in the developed and regulated markets of U.S. and Europe where there is general stability. We therefore see a favorable environment for our business. Our formulations business, which is spread over many countries, has had a good quarter and a good first half for the fiscal year, growing in double digits overall and in most geographies. We are expanding our phytosolutions range to more markets and have also introduced new products for companion animals. There has been strong growth in Europe, especially in our distribution business, and we are beginning to slowly get price increases in an inflationary environment.
Coming to emerging markets, we are seeing a more predictable and steady currency scenario in Turkey, and the government actions are also more calibrated and predictable. We have therefore accelerated our efforts to launch a few more products in the coming year, apart from taking judicious price increases. As we indicated earlier, we have received EU GMP certification for our manufacturing facility in Turkey, so we have started validation of the first load of injectable products for exports from this facility. Our exports from Turkey help us in hedging foreign exchange requirements in addition to driving operational efficiencies. So, this has been a good first half for exports from Turkey.
Our business in Brazil, which had seen flat to declining performance last year, has begun growing this quarter, as we refresh the product portfolio and expand to other LATAM markets. And as we shared earlier, we have expanded our formulations team in India, and this is the first full quarter of that impact. And the India formulations business has also delivered a strong double-digit growth.
Now coming to the API business, API revenues for the quarter were slightly below plan, as we had to postpone a few quarter ending shipments to carry forward to the next quarter. But our margins continue to improve, and we have successfully completed many customer audits for continuing businesses as well as for commencing new supplies. The plants in Vizag and Mahad have received important recognitions for safety and quality from government authorities, customers and industry bodies. Some details are available on this in the investor presentation.
So, it is here that I wish to bring your attention to the proposed merger with Viyash Life Sciences. The merger will have a transformative impact on the company in terms of R&D, supply chain and manufacturing. The combined entity will have significant scale, for instance, a six-fold increase in R&D strength and a fivefold increase in capacity. Viyash is a very strong performer in all aspects of the business, and you would have seen in the investor presentation the excellent results of Viyash on a standalone basis as well as the impact on the combined entity. Clearly this is a highly accretive merger which will drive strategic advantages for the business. Dr. Hari will later provide a more detailed perspective on this.
So, we are now poised for accelerated growth while improving margins. There is increasing interest in animal health both for production animals and for pets. In addition, there is a growing demand for India to participate as an important source of products and services, be it APIs, formulations or CDMO opportunities. We remain focused and confident that our actions and plans will deliver consistent, profitable and sustainable growth in the coming years.
I will now hand over to Saurav to share the financial details of SeQuent and then invite Dr. Hari to share the highlights of the Viyash performance. Over to you Saurav.
Saurav Bhala — Chief Financial Officer
Thank you, Raja, and good morning, everyone. It’s a pleasure to be here today to provide key highlights into our financial performance for both the Q2 and H1 financial year ’25. We’ll also update on the progress of our strategic M&A announced for the composite scheme of amalgamation with Viyash Group and SeQuent Research Ltd., one of our wholly owned subsidiary, which marks an exciting phase in our journey towards long-term growth and value creation for all the stakeholders.
Starting with the SeQuent financial highlights. Our Q2 financial year ’25, total revenue is at INR3686 million with EBITDA pre-ESOP of INR447 million. For the first half of financial year 25, our total revenue is INR7,589 million and EBITDA is INR930 million. I am pleased to report a strong year-on-year growth of 6.6% for Q2 and 11.7% for H1 financial year ’25. Our EBITDA growth is particularly impressive with a 70% increase in Q2 and a 161% increase in H1 on a year-on-year basis. These results reflect our ongoing commitment to drive operational excellence and profitability. Q2 financial year ’25 revenue highlights — in Q2 our formulation business generated INR2,836 million in revenue accounting for 79% of our total revenue, while API business contributed INR773 million, accounting for 21% of our topline.
Our European operations delivered robust growth with revenue of INR1,335 million, reflecting a 5.5% year-on-year growth on a constant currency basis. Emerging markets reported revenue of INR1,160 million, up by 26.5% year-on-year basis in constant currency. This growth is driven by selective price and targeted price increases and volume recovery in our Turkey market, which is one of our key global formulation markets. The Indian formulation business posted revenue of INR341 million, reflecting a strong 25% year-on-year growth.
Gross margin improvements, we are pleased to report an improvement in our gross margins which increased by 190 basis points in Q2, rising from 45.1% to 47%. For H2 — for H1, the margin improvement improved by 265 basis points from 43.4% to 46%. This growth can be attributed to several strategic initiatives including sales mix optimization and implementing targeted price increase across geographies.
Cost optimization. In line with our focus on improving operational efficiency, successfully reduced operating expense despite facing inflationary pressures across geographies, we achieved a 1% year-on-year reduction in our operating expense for both Q2 and H1 respectively, demonstrating our disciplined approach towards cost management. EBITDA margin improvements, these actions have led to a significant improvement in our EBITDA margins pre-ESOP which increased by 452 basis points in Q2 from 7.6% in Q2 financial year ’24 to 12.1% in Q2 financial year ’25 and by 700 basis points in H1 from 5.2% in H1 financial year ’24 to 12.3% in H1 financial year ’25, reflecting our continued focus on driving profitability.
Other income and financial Items, during the quarter two, we recognized a gain of INR31 million on the transfer of leasehold rights for our Tarapur facility in India. We also recorded a net monetary gain due to impact of hyperinflation in Turkey as required, as per IndAS 29.
Balance sheet highlights. On the balance sheet, we show very modest increase in working capital which rose to INR425 million, up from INR4201 million as of 31 March ’24. This increase reflects a strategic decision to support the planned growth in our Turkey and Spain business, resulting in inventory levels for short term.
In terms of leverage, our net debt to EBITDA ratio improved to 2.3 times as on 30th September ’24, compared to 3.55 times as of 31st March ’24. On absolute basis, our net debt stood at INR3,774 million, a slight decrease from INR3,788 million as of 31st March ’24. Our improved leverage position gives us the capacity to manage future business growth investments and navigate any potential economic uncertainties, positioning us well for long-term growth and value creation for all our stakeholders.
Moving on to update on our M&A progress, I am pleased to report that we have made good progress on the Composite Scheme of Amalgamation. This scheme has been approved by our Board of Directors, involves a merger of Viyash Life Sciences Private Limited and its subsidiaries as well as SeQuent Research, a wholly owned subsidy of SeQuent Scientific Limited. The completion of the merger remains subject to necessary regulatory approval for which the process has started and is progressing well as per the plan.
Here are a brief timeline of key milestone achieved as on date. Board approved the scheme on 26 September 2024. BSE filing of the scheme was done on 16 October ’24 and the scheme has got listed on the BSE website. NSC filing of the scheme was done on the 17th October ’24 and the same is listed on NSE website.
In addition, we have also started the process to relocate our registered offices as follows: SeQuent Scientific Limited from Thane to Hyderabad, SeQuent Research Limited from Mangalore to Hyderabad. For the above merger process, we incurred a cost of INR43.2 million during Q2 and H1 of financial year ’25 which are accounted for and disclosed as an exceptional item in the reported financials.
In summary, our strong financial performance in Q2 and H1 highlights the success of our strategic initiatives, operational efficiencies and continued focus on profitability. Progress on our M&A activities further strengthens our position for long-term growth and expansion. We remain dedicated to delivering value for all our stakeholders, and we are confident in our path towards sustained growth. With this I now hand over the call to Dr. Hari Babu to share further details on the performance highlights of Viyash. Thank you.
Hari Babu — Whole Time Director and CEO
Thank you Saurav and Rajaram. Good morning, everyone. I am very glad to share Viyash financial performance and also strategic initiatives today. So, coming to financial performance, Viyash recorded strong performance in Q2 FY ’25. Our revenue grew by 10% year-on-year to INR363 crores and strong EBITDA growth by 33% year-on-year to 63 growth [Phonetic]. Viyash shared EBITDA margins of 73% with improvement of almost 3% year-on-year.
Coming to first half of FY ’25, Viyash revenue grew by 5% year-on-year and again strong EBITDA growth by 30% year-on-year. Viyash had a strong first half ’25 EBITDA margins of again 17.2% which is almost improvement of 3.3% from last year, and we also generated INR100 crores free cash flow. I think this is a big achievement for this year mainly driven by optimization in working capital and also low capex. As we mentioned earlier also, we have actually strong infrastructure in manufacturing and also, we have some free capacity, that’s how we are able to reduce capex.
Our net debt to LTM EBITDA ratio is 0.7% even after actually investing to acquire [Indecipherable]. The financial performance has remained mainly by focusing on high margin API products and also as we mentioned earlier, we rationalized a couple of intermediate business which are not sustainable products and also continuous cost optimization of various projects, both API as well as intermediate. And also, business growth is mainly supported by investments, what we did last couple of years where we did a lot of investments and resources in R&D as well as operations. With that, actually it started resulting now new product filings as well launches. So, I think these are the recorded filings. First off, we are able to do 19 products globally. Of course, 17 are API and two FDX we filed all over the world, start from U.S., Europe, China, everywhere in the world, and also, we were able to launch two products in first half.
And the second main key focused area where we did last couple of years, innovative business. Even though we were doing innovative business for the lifecycle management, with our strong R&D strength and operating platform, we are able to develop two more innovative business, and after struggling last two to two and half years of hard work, now we are able to validate and supply validation qualities for two innovators, one is API we did last quarter, and also, we did one intermediate last quarter. These two are basically part of their lifecycle management where they do a large volume commercial product, and we expect approvals of these things to start from maybe next one, two, three years, because it requires a lot of regulatory filing from their side, and it’s going to generate business from up to one year intermediate, but most of the API business is going to generate maybe after two years.
In continuation to this, of course we have few products also from pipelines, strategic tie up with innovator as well as large pharmaceutical players. And also, as we continuously mentioned, this is the R&D focus company. So, we have always strong product portfolio and pipeline. So today at any point of time today we have 25 products in our pipeline. And we completed nine products validations in first half.
And with our regulatory and quality focus, we were able to manage multiple audits continuously. I think last six months, there were 99 customer audits from various countries, and our team was able to handle successfully all audits. And also, we have received two clean EIRs from U.S. FDA which was audited last quarter of FY ’24. These are the two clean EIR, and also, we are expecting two more inspections soon. But our team is fully geared up to manage all those things.
And first half of FY ’25, we have received six regulatory approvals, two in U.S. and three in Europe. These are mix of both FDA as well as a couple of CEPS. And also we received one product from China.
And diverse revenue from strong portfolio. So, our portfolio is always we said differentiated from all other genetic companies. That shows actually our strength of sustainability maintaining the profits. Our top 10 products contribute almost 62% of our API revenue. And this is mainly because of our products are either innovative based or little bit complex. And also, we are able to maintain sustainable growth because of fully backward integrated and complex products. And these 10 products if we see last two years from FY ’20 to ’24, it has grown over 20% CAGR [Phonetic] last two years. And also, out of 10 top APIs, six products, we are global leaders with 50% plus market share.
And our portfolio is always either complex or fully backward integrated with high share of revenue from regulatory markets. Most of our commercial products were very strong in regulatory. That’s how we are able to sustain the gross margins.
Innovative relationships. We have strong innovative relationship. I think we have four by innovators always we do business, but it is mostly part of their life cycle management. We have continued to do both innovators as well as strong relationship with the big innovative companies.
And team, our team is very strong is all our globally experienced team and average experience I can say more than 20 years, 25 years each one. And most important, all these guys are very well exposed to every global market to handle either R&D complex development or manage highly complex regulatory environment. And also, business team is very qualified team managed all over the world. And of course, all our quality and regulatory teams are pretty strong globally.
With this, let me update a little bit about our combined performance of measured entity. For Q2 FY ’25, combined revenue of the two entities grew by 8% year-on-year and most important EBITDA grew by 46% year-on-year. The combined business had an EBITDA of INR108 crores with 14.7% margins, with 380 base points improvement year-on-year. Going to first half of FY ’25, combined revenue of the two entities grew by 9% year-on-year and EBITDA grew by 67% year-on-year. The combined business had an EBITDA of INR214 crores with 14.6% margins with [Indecipherable] improvements. So, the combined net debt, net debt to EBITDA ratio is 1.4 times, and it’s going to improve continuously.
As we had indicated previously, the merger will create a global integrated end-to-end pharmaceutical business, both in animal health as well as pharmaceuticals, human health. The combined business will have, as Rajaram mentioned earlier, it’s six times larger R&D team. R&D team is almost 200 people in Viyash, and five times more capacity and 10 more years FDA approved sites. As you guys know, Viyash, all our sites are fully FDA approved sites.
We believe there are potential synergies in four core areas. That’s the strength of course Viyash and SeQuent. The first one is manufacturing with the strong capability of Viyash manufacturing and procurement, that’s where actually we can have large synergies for SeQuent and also business perspective, since both companies are having relationship with big pharmaceutical companies including innovators, we strongly believe we can expand sales footprint for both companies.
And R&D, R&D with Viyash coming in, strong R&D, this is going to help SeQuent a lot in R&D perspective to develop new products as well as launching. Others, of course, indirect cost since our base is going to grow largely this indirect cost or direct procurements all it’s going to have large synergies, and of course we started putting together what kind of synergies and we will start acting very soon on those things within the regulatory purview.
As Saurav mentioned, [Indecipherable] scheme has been filed already with exchanges. We started addressing their queries, and we expect this maybe next 12 months — 12 months to 15 months as we explained earlier. I think it’s on track. With these things, I can say with the combined platform, we are going to have a strong business potential. We started working together, of course, within the regulatory purview. We are going to put together what kind of synergies, when can we act, when we are going to see those synergies will come to you guys soon. With that, thank you so much and we are happy to answer any questions. Now handing over to Abhishek, to you. Thank you.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question is from the line of Hrithika, who is an individual investor. Please go ahead.
Hrithika
Thank you for the opportunity. I actually have three questions. One is, would you be undertaking any acquisitions in the future, and what kind of businesses would that be in? Secondly, Carlisle invested four years ago, I think so. What are their plans for exit? And third would be what is the plan to reduce your debt and also your finance cost?
Rajaram Narayanan
Thank you very much, Hrithika. So, obviously this is a big merger for us, and it has been, you know, this itself is something that has to get executed over a period of time. But would we be open to any kind of acquisitions and opportunities, whether they are, you know, small brands, whether they are small partnerships or even strategic large opportunities? Yes, we will be. It needs to fit in with the areas which we want to grow. And we have spelled that out very clearly that we are looking for growth in certain specific areas. In animal health, we are looking at opportunities to deepen our capabilities. And also, in terms of the entire companion animal area is the place where we would be open to taking any acquisition. So, yes, we are, but obviously we need to be very disciplined in the way we will make these choices. It is, you know, not something that we are intending to do merely to pursue growth.
As far as Carlyle plans, frankly, they are the promoters in this. I would imagine that they are fully, since they are the principal shareholders in both the companies, and this merger would also go through with the support of Carlyle. They are fully invested in this particular operation. But I wouldn’t be able to speak on their behalf, except, of course, say very clearly that we have enormous support from the promoters in all respects, including the execution of this merger as well as benefits that we would get after this particular merger.
On the third area which is to reduce debts, I think you’re already seeing that we have as a result of this merger in terms of leverage we would be coming down quite substantially. But I’ll ask Saurav to comment a bit on the debt side of it.
Saurav Bhala
Yeah, sure. Thanks. So, our debt to EBITDA level is already going down. As I explained, it was at 3.55 times as on 31st March ’24. As on 30th September ’24, we are down to 2.30 times. And with the improvement in EBITDA, the debt or the gearing ratio is going to go down. Overall debt level I believe would remain same for next few quarters where there’s a lot of investment happening in terms of working capital to support the business expansion. Also, it’s important to note that is on a standalone basis, if you see on a combined basis, even today our debt EBITDA is below 1.50 times if you combined SeQuent and Viyash financials. And that brings us to a very comfortable position in terms of overall debt level and the gearing ratios. Thank you.
Rajaram Narayanan
Thank you. But maybe I’ll ask Dr. Hari to also comment a bit on the first question which is on any plans of the acquisition, because I think given the current merger, he would also have a perspective on that.
Hari Babu
Sure, Raj. This is a continuous process, either expanding the business, expansion growth through various things, right. One is going into the new capability development like new product acquisitions or new acquisitions are much. This is a continuous process. But definitely we will look at continuously but may not be bigger acquisition soon. But we are going to add multiple areas and capabilities and products. And also, if we get opportunities, we are always open to acquire products. That’s a continuous thing.
And coming to that one financial strength. If you see combined entity, we are going to be very financially strong company. It’s going to soon maybe I don’t know exactly, at least one year to two years is going to debt free company. But the intention is not to maintain debt free company. How can you invest further and grow business, that’s the continuous process.
Rajaram Narayanan
Thank you. Thank you, Dr. Hari. Yeah, next question.
Operator
Thank you. The next question is from the line of Nikhil Shetty from Nuvama Wealth. Please go ahead.
Nikhil Shetty
Yeah, thanks for the opportunity, sir. And sir, could you clarify, is there any seasonality in our formulation numbers as the sequential figures appear lower, and also what’s the primary driving the growth in the Indian formulation? Are there any recent product launches or it is largely due to the [Indecipherable] expansion.
Rajaram Narayanan
Thanks. So, first of all there is seasonality in specific markets, but on an overall basis, it’s not really seasonality. I think sequentially you will see some reduction in quarter two, compared to quarter one because as we had indicated we had an additional — extraordinary sales of vaccines in the first quarter on account of a breakout of the Bluetongue disease which happened in Europe. And that was something which gave quarter one a bit of a jump. But having said that, all the other businesses on a year-to-year basis are growing in double digits, and that’s why I would say that the growth of the businesses are intact.
The second part of it is — but yes, in market by market you will find some seasonality which will come in. But this particular quarter being slightly lower than the first quarter, but still growing in double digits is on account of additional one sale that we got in Europe in the first quarter. Second question on the India formulations growth, it is not entirely on account of addition of new people. That has just started, you know, giving us the impact because as you know it takes time for the new locations to get full potential of sales. It is on account of more aggressive promotions. It is also an account of three new products which we had launched last year, which are now getting the full scale of sales. You would recall that I had spoken about three products which we had imported, started importing from Turkey, and we launched it in India. So, we are also getting some growth on account of that.
But the impact actually of the new people on ground would be more evident towards quarter four because that’s the kind of time around which you begin to reach full capacity for what you have invested in terms of people. So, it takes about a year to get the full potential of the region. Thank you, Nikhil.
Nikhil Shetty
Yeah, yeah, yeah. So, it would be helpful to understand the extent of API sales that have shifted for — to Q3 and the reason behind the shift, and what quarterly run rate you expect for H2?
Rajaram Narayanan
Look, I won’t get into the exact number, but you know, we would typically have like to be more in the region of INR85 crores to INR88 crores is the kind of number which we should have been in quarter two. So, you can make some kind of estimate on how much might get carried forward. I think we are right now looking, as we had indicated earlier, that between an INR85 crores to a INR95 crore run rate is what should be sort of steady state for us. At this stage, you know, there’s no reason to believe why we will not be that.
Nikhil Shetty
Yeah, that’s helpful. And lastly sir, regarding exceptional item, are there any remaining expenses related to the Viyash merger, or have all costs have been reported in Q2? And could you explain why ESOP cost is higher this quarter? I believe it was expected to be lower.
Rajaram Narayanan
Yes, I’ll answer the second one — piece of it. As you know there is a total plan for ESOPs which was approved in 2020, and we have now nearly completed the allocation of all that was not granted. And so, with that we have nearly completed all the grants which were there. So, it is one, the balance grants which have been provided in this particular quarter, as well as some change in the vesting conditions which will not impact on the totality of the cost, but would accelerate a bit into the early year, and not impact the total impact — on the total cost of the ESOP.
The second question in terms of exceptional items, obviously the merger process was on, so there will be costs which will come but this is what is typical to any kind of a merger. We will make those estimates as we go along. I wouldn’t want to give clear guidance on that right now.
Nikhil Shetty
Okay, thank you sir, and all the best for future.
Rajaram Narayanan
Yeah, thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investments. Please go ahead.
Bharat Sheth
Hi sir and thanks for the opportunity, and congratulations to the whole team of the SeQuent and Viyash. My question is now, since announcement two months has already passed, but I mean so before official merger is announced on paper, so operational what are the benefits that we look I mean try to get in say over the next 12 months to two years’ time that can help us I mean understanding broader aspect, that is first question.
Rajaram Narayanan
So, what’s the other question, sir, what else, what are the other questions? I’ll just take all the questions together so that I’ll be able to answer.
Bharat Sheth
And second thing sir, and we have been getting understanding that lot of, I mean animal health care are looking India for CDMO business as well as custom manufacturing. So, in that place how we’d like to play out over the next two, three years, and third on the financial side, if I look at, I mean our H1 population growth is reported to be 16%, but if we look at constant currency which is 24% and since you in your opening remark you said that Turkey has stabilized, so how do we see second half growth?
Rajaram Narayanan
So, thank you Mr. Sheth for the questions. I’ll take the third one which is on you know on the constant currency growth and on the formulations. So, at this point of time, what you can see is that there is growth in constant currency as well as there is growth in the reported currency in almost all the markets. I think that gives us a sense, and there is not so much of a difference between the two growth numbers which means that there is no adverse movement in currency other than what is normally would be depreciation which may happen here there. So, to that extent, I think going ahead also in the second half we are confident and also hopeful that there will be growth both in constant currency as well as in the reported currency in all the markets. In Turkey specifically, since you have asked, in recent times, which is the last two quarters, we have seen that the currency is relatively more stable, and also there are no ad hoc sort of announcements and initiatives which we used to see about two years ago. So, to that extent I think we can begin to be looking at a business where we are focusing on growing volumes, making sure we are launching new products and not get too impacted other than of course inflation. But that’s where we bring in price increases.
There are two other questions which actually I will request Dr. Hari to give his perspective on it. The first being on now that the merger is a little over a month from an announcement, how do we see the next 12 months in terms of our synergies, and things coming together, and also the second one which is on the CDMO opportunities which could be coming up in animal health, yeah. Thank you, Dr. Hari.
Hari Babu
Yeah, thank you, Rajaram. Coming to synergies, we started working with the synergies, and as I explained there are four, five, four areas where we are looking at the synergies. R&D, manufacturing, sales and other indirect cost, whatever. These synergies will be both short term, mid term and long term. We started working of course since we just filed two months back. Still, we need to understand what extent we can share these to public. But as soon as we can we will share that we are working very seriously, both teams. But definitely it’s going to be the good synergies both short term and midterm. But most important long term is our focus. So, we can share you guys as soon as we can because, still we need to work actually what kind of things we can share to the public.
And the second thing is CDMO. There’s a lot of initiatives happened, both sides. Already, we started interacting okay without conflicting anything, whether it is [Indecipherable] regulatory purview, we started interacting and we see some good opportunities coming in CDMO business with Viyash capability. Already, we started working with one CDMO business very actively. But these CDMOs will take a little longer time. It’s mostly mid-term opportunities thing, and Viyash also, there’s a large number of products going on both CDMO with big Pharma as well as CDMOs with big generic companies also. We are trying to work with big generic companies in different ways. Instead of just selling and buying more, we are working with a few partners. That’s how you see that just in two years for any company, it’s not easy to build a relationship with innovators and complete all their requirements which includes big EHS activities and quality and developing products as expected by them. It’s not like generic whatever process you can do, it’s not the same way to CDMO. So, we are very successful to develop three products with them. Two innovators already we validated and supplied, one intermediate and one API. These are the big products which is going to happen next. That it’s going to be a large CDMO business next three to five years. But CDMO revenues will start coming maybe in medium term kind of thing.
Rajaram Narayanan
So, I hope I answered your questions. If you have any other question on this I can.
Bharat Sheth
Apart from, hello, yeah, thanks for that. Apart from that contract manufacturing which SeQuent already has, and SeQuent has got some approval, so how do we can. I mean transfer, because SeQuent is facing some kind of a manufacturing capacity constraint also. So that can be transferred to our facility in two years and how long that will take.
Rajaram Narayanan
So, there are two aspects in that. One is how fast you can expand or transfer existing business. Still, we want to maintain that animal health identity in that site. Whatever the SeQuent requires immediate needs up to penultimate stage, up to N minus one stage, it’s same, whether it is human health or animal health. That’s where we have large capacity. You can see our intimate facilities are approved by FDA. That’s where we can do quick transfer. That what we call if it is ES, FDA, CB30, all other regulatory rules of course based on the market normally takes six months to one year. Some things can happen in six months, some thing can happen in one year. So, we are evaluating all those things. The short-term approach is whatever intermediates they need additional demand, those things can be transferred immediately to Viyash manufacturing site. And also, second thing where we procure key starting materials from external sources. If there is a synergy those things also would like to transfer to Viyash. Of course, the additional capability to build a SeQuent for short term needs. Already we are working together. How can we expand final stage APIs by supporting Viyash from intermediates.
So, these things are happening. It’s only — not only content manufacturing, its content development as well as manufacturing. And also, now SeQuent is going to pursue aggressively on generic animal health products. Today most of the SeQuent business is going to innovate 70%, 80% and there are lot of opportunities coming even from generic animal health. That’s where we are going to focus on these things.
All we are working on, I think maybe take some time, we can share you as soon we can.
Bharat Sheth
Thank you, and all the best.
Rajaram Narayanan
Yeah, Bharat bhai, thank you for your questions.
Abhishek Singhal
Yeah, the next question?
Operator
Thank you. The next question is from the line of Kiran Deep from Stable Tree Capital [Phonetic]. Please go ahead.
Unidentified Participant
Thanks for the opportunity. This question is to Dr. Hari. Sir, I mean we’ve tried searching for more information on Viyash Life Sciences but beyond knowing that Linezolid is one of the products, we hardly know anything about Viyash. We are not able to find any information. So, if you could just elaborate in detail about [Speech Overlap] some of our customer segments. What we do, how much is our domestic revenue, how much is our export revenue? Are we doing ARVs, anti-infectives, oncology, which segments? So, if you could just elaborate on the Viyash business, on product segments, customer segments and what percentage of domestic export revenue, innovator segments. If you could just, again, this is like a very strategic level of information that I’m looking for, Dr. Hari.
Hari Babu
Sure. Thank you for that. But I can give you very high-level things, guys. I cannot go into very detail but I can give you very high-level things. So, Viyash operates very large portfolio in API today. So, we have about 60 commercial products and we operate almost close to 150 countries. So, we sell everywhere in the world. Our majority business of course, API business in Europe, major business, almost 30 plus percentage we do. But we are growing very fast in the U.S. and we do business in LATAM, we do business in China. And our large business is coming from exports and mostly from regulated markets. So regulated markets definitely know that somebody says U.S., Europe, Japan, Australia, but if you look at the markets like, emerging markets, China, Brazil also works under highly regulatory markets. Once you enter with the client, it’s very difficult to change those markets. In fact, U.S. is much easier than those markets. So, our major revenue comes from regulated markets. Us, Europe, LATAM, China, and now last two years we started working with Japan. If you ask me straight away, where we don’t have much business today in Japan, that’s where we are working very seriously. Fortunately, we are able to tie it up with a few customers, last six months, one or two products, and our India domestic to domestic market is very little. We don’t sell much for domestic to domestic. Even though our numbers reflect India’s sales, it mostly goes to into the regulatory markets. You know very well most of the Indian companies controlled U.S. as well as Europe generic market. So that’s how they buy from us and convert and sell it to U.S. and Europe. So, it’s going to the mostly regulated market.
So, we have 60 commercial products and almost 20 products under either filed or under approval stage. That’s the API. And always our pipeline is around 20%, 25%. We have very strong portfolio team, and of course R&D, you know we have strong R&D, around 175 people in AP R&D. They are capable to do at least 10, 12 products in a year. That’s how we are able to do that. And when it comes to product segment, we are everywhere. Most of the things you know API business requires general facilities for most of these areas. Except few areas like fermentation or hormones or oncology. Other than hormones fermentation, we are everywhere. So, this product segmentation is, we are in all categories, whether CNS or diabetic, every area we are there in fact all those things. And new area where we started is oncology. We have FDA approved facilities oncology. One facility we mostly used to do for contact manufacturing, one of the big companies. But other facility we refurbished and re-qualified this quarter. That’s oncology capability wise, it’s one of the big facility. We have two modules, and that modules are ready now which is qualified all equipment. So now validations are going to start in that oncology. And also, if you can see our portfolio — current portfolio, almost 50% are in oncology.
Our strategy to develop last two, three years products we did mix of two three categories. One is to maintain sustainability whatever is the top line, bottom line. Second is how can we grow mid-term by developing either large volume products where we have strength on intermediate or where we have strength on formulation, go to backward integration. That’s how we focused in one category. And third category is most going towards little more complex areas which includes oncology. That’s how we moved out slowly from matured products to little complex products or little late launches like NC minus 1 or little more complex. So, that’s how our current portfolio is 50 plus percentage are all new molecules either complex or oncology. So, this is going to be a big oncology portfolio, we are going to build next one year to two years.
Rajaram Narayanan
Sir, markets, that’s how we do 150 plus products. We have commercially but all over the world. And this is not the only Linezolid company. As I explained earlier. I don’t know how many companies really have this strength. Our 10 products gives 60 plus things. So, it’s very well diversified. It’s not depending on one product like Linezolid. All products contribute a lot. And all products gross margins are pretty good. And the second point what I mentioned, out of 10 top products, six products, we are the market leader. It’s not only of course Linezolid, we have our own patent. We are the market leader. Other than Linezolid, we have five other products. We are the market leaders in the regulatory market. Of course, these six products are everywhere in the world. That’s how we can differentiate. So, we have very strong portfolio. That’s how we are moving on that. If you have any further questions, get back to us.
Unidentified Participant
Yeah. Follow up question then is — Sir. Yeah, please sir. Go ahead.
Rajaram Narayanan
Sorry, another two things you asked, antiretroviral. Even though we find few products when we build this company, our intention was to go to fully integrated platform antiretroviral. Since we had intermediates, we have strong capability on both manufacturing as well as understanding the markets. But we realized looking at the competitive profile, how the market is going on. So, we decided to drop antiviral products soon. So that’s how we rationalize couple of products. Why our top line has not grown too much from last year first half to this, only 5%, whereas EBITDA has grown drastically. That’s one of the reasons we rationalize few antiretroviral intermediates. In fact, we lost almost INR150 crores to INR200 crores top line. We downsized commodity business, and moving towards more complex and more new products. That’s how all our intermediate business, we are moving out from commodity large volume where small guys can compete differently. We are moving to either innovative place or big generic companies where we can tie up long but also doing little more complex regulatory environment for new products. Because that’s where we see the growth opportunity for intermediates. If you tie up with the regulatory and regulatory expectations also growing day by day for intermediate. That’s where we see opportunity for us. That’s how intermediate business is growing.
And the third business segment [Indecipherable]. So, we have manufacturing site in U.S. We do business only for U.S. at this point. But we are working actually how can we expand other markets. But that’s going to happen next three to five years in terms of revenues.
Unidentified Participant
[Speech Overlap] I just have a follow up question, sir. In terms of revenue, we have reached, again to Dr. Hari, we have reached about 700…
Operator
Sorry to interrupt Mr. Kiran. Please fall back in the queue for further questions. Thank you. The next question is from the line of Kaustav Bubna from BMSPL Capital. Please go ahead.
Kaustav Bubna
Yeah. Hi Dr. Hari, thanks for taking my question. So, you know last time we spoke about the potential opportunities from this U.S. Biosecure Act. So just wanted to understand what’s the update on how is this — how is this act progressing? What is the update? Has it been approved? When will the benefits start flowing in? Could you give some updates over there?
Hari Babu
I don’t see the current update but what I heard actually still it has to be approved when one house, since now Trump coming in, everybody’s expected it’s going to approve in other house also soon. But we have to wait and see. But more than approval, we see there’s a positive trend of one to one and half years. That’s how CDMO companies are able to expand capacities and able to get. And also, we also see some opportunities from big companies. So, one is act when they are going to approve all those things. But irrespective of that, we see that positive trend coming business to India. I think that still the Senate approval is pending. So maybe after the new government Trump come in, they do that.
Kaustav Bubna
Okay. Okay. So basically, the Senate approval is remaining. And, and so I mean you all are in the know-how, you know you’re close to this matter. Do you think there’s a risk with Trump taking office or do you think it will aid the passing of this act?
Hari Babu
I cannot comment that level but as a personal level, I don’t see any risk it’s going to happen. But official approval, nobody knows. But business is going to come to India, that’s what I can tell you.
Kaustav Bubna
Excellent. Okay, thank you so much. Thank you. Very helpful.
Operator
Thank you. The next question is from the line of Prashant Kumar Hashiwala who is an individual investor. Please go ahead.
Prashant Kumar Hashiwala
Hi. Good morning, sir.
Rajaram Narayanan
Yeah, hi, good morning Prashant.
Prashant Kumar Hashiwala
Yes, congratulations for good improvement in CBI TDA operating margin. But my question is like when we will see this kind of impact in profit after tax? Because when we come down to the profit after tax, there is nothing much left for the profit. So how do you see this, like when exactly we can expect that we will get to some good level of profit after tax?
Rajaram Narayanan
Yeah. I think. Thank you for this question. You should also look at it in the way in which, you know, post the merger what we, how the financials would move, and therefore all that at this stage I can say is that you know, the way the business plans will emerge, we expect that, you know, at a PAT level we would be beginning to accelerate on the delivery at that level very soon. Yeah, much earlier than we would have been able to do on a standalone basis on SeQuent.
Prashant Kumar Hashiwala
So, like for SeQuent, what we had a plan for SeQuent. If we don’t consider merger, what was the plan for SeQuent about profit after tax?
Rajaram Narayanan
We are already beginning to move in that direction. If you see that in quarter one of FY ’25, we had begun to turn positive on PAT and by the fourth quarter of this year we would have begun to get the growth coming in, and therefore FY ’26 is where most of the incremental growth which would come into margin and EBITDA would flow through straight into the PAT. Yes Saurav, let’s see.
Saurav Bhala
And just to add, there is already a very significant improvement in the PAT. H1 financial year ’25, there was a negative PAT of INR588 million. H1 ’25, that is a positive of INR199 million, strong trend reversal at a growth of 134%. All this business upgrades takes time, and directionally we are already there, and we’ll keep on growing strongly in the direction.
Prashant Kumar Hashiwala
So. All right. And so, what kind of cost, ESOP cost we will have, we will have for next one or two years. Like how do we see this cost? Because it is, it is dampening our profit after tax all the time and it’s varying. It’s not finishing. I don’t know why. It’s not like before two, three years we have started but still it keeps on going on. So how do we see ESOP cost?
Saurav Bhala
It is improving and it will keep on improving, but unfortunately, we don’t give forward guidance on specific numbers for couple of years.
Rajaram Narayanan
All that I can say, what I said earlier is that the scheme grant which is the total number of shares which were approved for grant more or less have been exhausted with the last round of grants that happened this quarter. So, therefore, obviously we should see that in the next two to three quarters it should directionally start moving downwards.
Prashant Kumar Hashiwala
So, any ballpark number like estimates and like INR1 crore, INR2 crore, kind of thing. What kind of cost we can consider quarterly [Speech Overlap].
Rajaram Narayanan
It is expected to increase. It should begin to come down, and I think it’s by the next quarter we’ll begin to give some more clarity on the rate at which it will come down.
Prashant Kumar Hashiwala
All right, no problem. Thank you very much.
Rajaram Narayanan
Thank you very much for your question.
Operator
Thank you. Due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Rajaram Narayanan
Thank you. Thank you, everybody for participating in this call. And I hope that we’ve been able to provide you insights on our business performance, and also the way ahead as a result of the proposed merger with Viyash. We are excited with the prospects and the journey ahead. We’ve already begun to see the results, and we thank you all for supporting the company. We will now end this call and wish you all a good day ahead. Thank you.
Operator
Thank you. [Operator Closing Remarks]