Sequent Scientific Limited (NSE:SEQUENT) Q2 FY23 Earnings Concall dated Nov. 08, 2022
Corporate Participants:
Abhishek Singhal — Head of Investor Relations
Rajaram Narayanan — Managing Director
P. V. Raghavendra Rao — Chief Financial Officer
Sharat Narasapur — Joint Managing Director
Analysts:
Rishab Jain — Individual Investor — Analyst
Vishwas Nandwani — Individual Investor — Analyst
Nikunj Jain — NJ Investments — Analyst
Unidentified Participant — — Analyst
Vishal Manchanda — The Systematix Group — Analyst
Udit Bokaria — Catamaran Advisors LLP — Analyst
Anand Trivedi — Nepean Capital LLP — Analyst
Ashish Thavkar — IIFL Asset Management Limited — Analyst
Aditya Khemka — InCred Capital Investment Advisors and Managers Pvt. Ltd. — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the SeQuent Scientific Limited Q2 FY ’23 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Abhishek Singhal. Thank you and over to you, sir.
Abhishek Singhal — Head of Investor Relations
Thanks, Sajan. A good afternoon and thank you for joining us today for SeQuent Scientific’s Earnings Conference Call and for Second Quarter and Half Year Ended Financial Year 2023. Today we have with us Mr. Rajaram, SeQuent’s Managing Director; Sharat, Joint Managing Director; and Mr. Raghavendra Rao, the CFO to share the highlights of the business and financials of 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 websites. The transcript for this call will be available in a week’s time on the company’s website. Please know 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 handover the call to Mr. Rajaram to make the opening comments.
Rajaram Narayanan — Managing Director
Good evening everyone. A very warm welcome to our Quarter Two and H1 FY ’23 Earnings Call. Joining me on this call is our CFO, Mr. P. V. Raghavendra Rao, and Mr. Sharat Narasapur, the Joint Managing Director of the company. As we complete half a year leading the SeQuent business, I would like to acknowledge and appreciate the resiliency in our business and the grit of our team.
The global macro-environment continues to be quite uncertain, but equally it provides the opportunity for companies like us to make sharper choices in strategy and resource allocation. This can be especially challenging for a global company like ours as we operate right now in four countries with nine manufacturing facilities across three different continents.
During the last quarter, we have faced multiple headwinds in the form of geopolitical issues in Europe, recessionary pressures in some of the economies, volatility in currencies, some rising prices and, of course, uncertainty in raw material supply. But we envisage that these are short-term challenges and the team is taking strategic initiatives to adapt and overcome. You would have seen from our presentation in fact on Page 4, where we have enlisted some strategic initiatives to win in such an environment. For example, we have re-prioritized some of our markets and customer segments in both formulations and APIs.
So let me now start with our Formulations business. On the Formulations side, we have realigned our focus markets to take advantage of some of the opportunities which are coming and at the same time to also allocate our resources appropriately. This can be seen in the way that we have bifurcated our revenue streams on Page 8 of our presentation and broadly categorized our business into three baskets of Europe, emerging markets, and India.
I’ll start with India. The Indian market has been growing at a very fast pace, in fact, it is growing in double-digits in market terms, and we ourselves have been growing in double-digits in the last three years and crossing the milestone of INR1 billion in annual revenue. You would have read about our recent announcement and I’m excited to announce that we have signed a definitive agreement to acquire a 100% stake in Tineta Pharma.
The revenues of Tineta in FY ’22 were INR810 million approximately. This is a profitable business and this acquisition will be accretive to our EBITDA margin. It will also help us significantly to scale-up our commercial presence in India in animal health and nearly double our current India Formulation revenues. Tineta has a well-established presence of more than 25 years in the Indian market, specializing in the livestock segment. The business has established a premium item brand in the nutritional segment, which is amongst the largest brands in the animal health portfolio.
The Tineta portfolio comprises of more than 30 brands across nutritional supplements, as well as therapeutic pharmaceutical formulations. They come with a 270 strong field force who are well experienced and the company is also supported by a deep distribution network and longstanding manufacturing partnerships. We are excited to welcome Tineta’s experienced business team into the SeQuent family. And even more happy that Mr. Vipin Chandan, who is one of the promoters of the company will work with SeQuent to transition and support this business integration. So going forward, India will remain one of our key focus markets and we will aggressively scale up our formulation business, both manufacturing and R&D executed locally.
In the emerging market segment, it also includes fast growing markets like Brazil and Turkey. We have seen very, very strong in-market growth both in constant-currency in the case of Brazil and Turkey and in translated currency in the case of Brazil. Strategically the emerging markets will cover different categories like poultry, cattle and ruminant animals. In the acquisition of Nourrie in Brazil earlier this year, we got a strategic entry into the fast-growing Pet Care segment, while sustaining strong growth in the existing livestock segment.
In Turkey, however, we have faced currency volatility in addition to high inflation in the market and that has resulted in some contraction in-demand. While we did see strong market growth, as well as in-market constant-currency growth, the currency challenges remain for us. And there is unprecedented surge in energy costs across Europe and that has impacted some of our margins in our Europe business, particularly in Spain.
The new rules in the European Union also restricts the routine use of antibiotics and we are therefore adjusting our product portfolio to meet some of these regulatory requirements. We have identified an opportunity in nutritional additives and launched a few products, which will aid in improving the gut health of animals, thereby reducing the dependence on traditional antibiotics. So our immediate attention in Turkey and Europe is to reshape the product mix, contain costs and prioritize the segments that we operate.
Overall, I’m happy to report that in the second-quarter in constant-currency terms the formulation business grew by 14.8% year-on year and 1.1% year-on year in reported currency, clocking a growth and at the same time a revenue of INR2.3 billion, with the India and LatAm markets, of course, registering double-digit growth. In Page 7 of our presentation we have shown the trajectory of the formulations business and you can see that it has grown at a 3-year CAGR of 11%. And now with the acquisition, the proposed acquisition of Tineta, we should see accelerated levels on this. This level of growth, in fact, is a testimony to the resilience of our globally diversified business. We now have a presence in, more than 80 countries across the globe.
Now coming to the API business. The macro-environment has impacted even our end-customers. And therefore we have seen subdued demand during the quarter. In addition, the current situation also resulted in higher input costs and pricing pressures. And therefore in the quarter the API business generated a revenue of INR920 million. While it is a growth of 3.5% quarter-on-quarter, it is a decline on a year-on year basis.
For the half year, the revenue stood at INR1.8 million. Our overall API margins remain directionally stable and we have also invested considerably in upgrading our facilities in the area of EHS and quality. But despite a slowdown in overall sales in our API business, we remain focused on the quality of our API sales, because we believe that that will contribute towards the return to growth in the next few quarters.
The contribution of sales to regulation markets is now 65%, which is a very strong position to be in. These are more stable and long-term and they value the quality of our products, as well as our manufacturing capabilities. We would also like to note that the top 10 animal health companies in the world and our customers and this basket comprises about 45% of our sales. And this has grown from 28% just two years ago.
On the new product front, we are accelerating our pipeline development efforts by expanding our teams in the API R&D setup and at the same time we are also building necessary capabilities for new product development and launch. At present, around 10% of our revenues come from new products. And this is a significant increase from just 2% a few years ago. Now this set up in investment in R&D will help us bringing new products in a much shortened time-frame. We now have three CDMO projects at different stages of development. So all these initiatives are in preparation for future growth as we begin to set ourselves towards building a high-quality, API business which is founded on-sales to regulated markets, new products and the share of top 10 customers.
I’m also happy to announce that the Mahad site has received The EcoVadis Sustainability Silver Medal and certificate and that sort of reinforces our commitment to sustainability and, it’s a significant milestone for us and in addition to that, of course we continue to have our EUGMP approved facilities upgrades to meet all the HS standards.
Having said that, overall, this has not been a very easy quarter. There has been many macro factors, which have prevailed, created some uncertainty. And the results overall may seem a bit disappointing, but our diversified portfolio and our deep capabilities in fact give us the opportunity to win in such an environment by renewing our focus on priority markets, priority segments, implementing strong profit improvement plans. And more importantly, I think as evidenced by our recent initiatives, it shows our confidence to grow strategically even through acquisitions, reinforcing our SeQuent 2.0 strategy. We expect that these moves will play-out more favorably for us in the coming quarters.
I’ll now hand over to our CFO, Mr. Raghavendra Rao to provide an update on the financial performance.
P. V. Raghavendra Rao — Chief Financial Officer
Thank you Raja. Good evening everyone. I will begin by detailing the proposed acquisition. Yesterday our Board had approved the acquisition of Tineta Pharma for an enterprise value of INR218 crores. A part of this will be paid as cash consideration, which is about INR153 crores and the other part will be by way of preferential allotment of SeQuent’s equity shares of INR65 crores. The acquisition will be immediately accretive for SeQuent, significantly scaling up SeQuent’s commercial presence in India with near doubling of our current India revenues. Tineta’s revenues stood at INR81 crores for FY ’22, delivering a double-digit Y-o-Y growth. With the addition of Tineta, SeQuent ‘s India business, which is fast-growing, will have an annualized combined revenues of approximately INR190 crores.
I will now briefly update on the key metrics for Q2 and H1 of FY ’23. Our total revenue for the quarter is at INR3.4 billion and have increased by 2.9% Y-o-Y in constant-currency terms. The major driving force of the growth has been our formulation business, which contributed INR2.4 billion with a strong 14.8% year-on-year constant-currency growth. On reported basis, formulation business is up by 1.3% year-on year. The emerging market business continues its growth momentum, delivering a revenue of INR1.1 billion with a robust 34.2% constant-currency growth.
India business has also delivered a 10.9% growth with a revenue of INR319 million. Euro business has suffered macro headwinds and is down by 7.3%, contributing INR899 million. The contribution from API business stands at INR920 million. In Q2 the EBITDA excluding ESOP costs stood at INR150 million, while the reported EBITDA came in at INR51 million, after considering the ESOP cost of INR98 million.
Gross margins continue to hold, despite the challenges like inflation in our key input materials. Overall operating costs remained flat despite inflation pressures and we have incurred about INR32 million for plant quality and improvement initiatives during the quarter. In H1 FY ’23 the formulation business clocked a revenue of INR4.8 billion, with a strong 17.1% year-on year constant-currency growth. The API business was at INR1.8 billion. Overall reported sales for H1 is at INR6.8 billion and are up 7.5% in constant-currency terms and 1.2% in reported terms.
In H1 EBITDA excluding ESOP stood at INR351 million, while the reported EBITDA is at INR161 million after considering ESOP cost of about INR190 million. Due to continuing inflation in Turkey, which constitutes — which continues to be above 100% over the last three years on a cumulative basis, accounting under Ind AS 29 financial reporting in hyper inflationary economies continues to be triggered for us. Accordingly, the financial statements of subsidiaries in Turkey have been prepared in accordance with Ind AS 29, which has impacted our consolidated EBITDA by about INR24 million for the quarter. Going ahead, I’m very confident that we will resume our growth trajectory.
Thank you very much and we can now open for Q&A.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Rishab Jain [Phonetic], an Individual Investor. Please go-ahead.
Rishab Jain — Individual Investor — Analyst
Hi, thank you for the opportunity. I have two questions. My first question is on the Tineta Pharma acquisition. So could you please talk a bit about this acquisition, so basically what kind of products have we acquired, and what are the synergies that we are looking at this acquisition? And also on the financial side, if you could help me understand, the FY ’22 top line was around INR81 crores, so how has this business performed during H1 FY ’23 and what was the EBITDA margins for this entity? So this is my first question.
Rajaram Narayanan — Managing Director
Can you also just ask the second question.
Rishab Jain — Individual Investor — Analyst
Yes, my second question is on the overall India business. So currently the business is around INR190 crores today along with the acquisition. I wanted to understand how large can this business be over the next three to four years and what kind of growth rate do you envisage for the India business?
Rajaram Narayanan — Managing Director
Okay, thank you for the questions. So to give you a bit about what Tineta Pharma is, it is a 25-year old company which was founded by three promoters. And who have had deep experience in the animal health industry. And over the period of the last 25 years, they have built a portfolio of products in this company and the products largely cover nutritional supplement and some pharmaceutical formulations for the livestock segment, which is largely for cattle.
The brands that they have are very well established. One of the larger brands — largest brand that they have in the portfolio is a brand called Vitum and the Vitum range itself is more than INR50 crores in terms of sales, making it one of the larger sort of animal health brands that we have.
In terms of — it comes with a strong sort of field force which is around 270 people who are very experienced in this business. And therefore when we look at the synergies, which we are talking about, we also have a Animal Health business specializing in Livestock cattle and that’s about INR100 crores with more than 100 people. So the combined business which you would look at would be around INR190 crores, with one of the larger, stronger field forces in India, as well as of course portfolio of very strong products, many of them complementary.
From a just synergy point-of-view, we see a lot of growth synergy. Because there is an opportunity for a lot of cross-sell, upsell which is possible through the combined team. And also with a strong front-end which is there with the Tineta team and our strong sort of back-end capabilities in terms of R&D, product development, potentially API integration. We see that given there is an opportunity for us to speedily launch a lot more products and there is this business. So there is going to be both expansion, as well as debt possible in this portfolio.
In terms of the broad financials of this — of Tineta, we — it was about INR81 crores of sales in FY ’22. I’m unable to give you a number for the first half, because it’s still unaudited figure which we have an idea about, but all that I can say is that, they have generally grown in high double digits in the recent times to between 10% and 20% every year over the last three to four years. And as we know that the first half is tracking quite well in-line with our plans. And so, therefore we expect that FY ’23 will also be a strong business when they continue with us.
As far as the overall India business opportunity is concerned, right now it’s about INR190 crores. The market in general is growing in here between 8% and 10% in this business, so our ambition is to grow much faster than the market after we combine. And therefore of course in addition to growth, we also expect synergies in terms of margins.
To pick up the question, what’s the margin profile of Tineta? So generally it’s in high-teens. That’s the kind of a margin profile, so depending on the year end, depending on the mix, so that’s broadly the kind of EBITDA profile that we see for the Tineta business. And that’s what we think will help in a quick accretive EBITDA, as well as allow us to get more synergy. So I hope that answers your question.
Operator
Thank you. [Operator Instructions] The next question is from the line of Vishwas Nandwani [Phonetic], an Individual Investor. Please go-ahead.
Vishwas Nandwani — Individual Investor — Analyst
Hi. So my question pertains to the API business. So in the first half of FY ’23 we have seen INR181 crores of revenue, which is a decline of 10% Y-o-Y. So, what has been the major contributors here? And if we see the second half of FY ’23, would the revenue be largely that or the second half we can see a stronger revenue than the first half? And pertaining to this, the annualized level for FY ’23, so according to the numbers, will we go down by 9% to 10% versus FY ’22 on a full year basis. And is this a new base which we can assume the forecast for our FY ’23? And on FY ’23 base, how do you see the growth over the medium-term and what would be the drivers for these growth?
And my second question pertains to the new products, which have contributed approximately 10% of your API sales. So, how would this pan-out based on your pipeline and conversation with your customers. And is the margin profile of these new products better than existing business margins? So these are my two questions.
Rajaram Narayanan — Managing Director
I mean a lot of questions, I’ll try and answer one at a time. So our first half API revenues are at about INR180 crores and I think there are — it’s certainly lesser than what we had planned and I have listed some of the reasons which were there. Of course if you look at on a full last six months basis, there have been a combination of reasons, some internal, for example, like the fire incident that we had, but at the same time, there has been pressure on the demand-side, particularly at the end of our end customers, which is therefore translated into either lesser quantities which have been ordered or to some extent a delay in the purchase.
And like I said, our customers are, at this point of time, also operating markets which have some of the economic headwinds which are there. And that does translate to some extent back to the API industry as well. So having said that, while I can’t sort of give you a forward-looking statement on what the second half will be like, it is more likely to be a little better than the first half.
But having said that, we do not expect that it will be at the levels at which we did last year. And I think it would only be fair to say that it may be marginally better than the first half. And this is something that will however accelerate as we move into the next three to four quarters, which is what I’ve spoken to you about on some of the initiatives that we are taking and the response to that we are getting. So I think it should be reasonable to say that to some extent we are re-basing the API annual number, and we should be looking more in the re-based FY ’23 to sort of set the platform of future growth.
Now, where will the annualized number land-up with, I think, from whenever I’ve spoken, it should be — the second half will be frankly better than the first half. But not in the — anywhere in the area of what we expected in order to grow versus last year. Now, in terms of where we are seeing the future plans on this, definitely we believe that the most important thing for us is in such and environment to improve the quality of our business. So we continue to focus on our regulated markets, which are about two-thirds of our business right now and that is more stable business, which we need to build and towards that we are launching a lot of new products and it is already 10% of our portfolio and we certainly would want to keep increasing that.
We have a larger number of products which are at different stages of development in API, some of them ready to launch from quarter-four, end quarter-four or early quarter-one. And that should get us some incremental revenue and then of course scale-up from there. And looking at the future years, yes we want to certainly grow on the re-based FY ’23. We would expect to grow in double-digits in terms of top line from the new base that we have in FY ’23. But what we expect is that the quality of the growth, the margins that we will have, as well as the sustainability of that business will be significantly improved and better than what it is today.
Now, coming to the last part of it on, how will the margins for new products be, typically when you launch a new product, because in the initial few quarters it tends to be lower than the aggregate margin that you have, but then it rapidly sort of increases after a few quarters. And that is why you need to have a continuous cycle of API launches which are sort of quickly reaching the sort of targeted margins and because we are talking to regulated customers, as well as the top API — veterinary companies, we expect that we will be sustainable margins without any kind of a currency impact, etc. So that’s I think, in summer, where we think the API business will go.
Operator
Mr. Nandwani, did that answer your question?
Vishwas Nandwani — Individual Investor — Analyst
Yes, that helps, thank you.
Operator
Thank you. The next question is from the line of Nikunj Jain from NJ Investments. Please go-ahead.
Nikunj Jain — NJ Investments — Analyst
Yes. Thanks for the presentation, actually it’s in-depth and it’s a very good presentation. My question is, first, related to the Europe business. So the Europe business has further weakened in the quarter, so the Q-on-Q constant-currency growth also what we can see is negative 11.2%. So just wanted to know the reason like what’s going on in that geographical area? And when do we see to — see the business to recover in Europe?
Rajaram Narayanan — Managing Director
Hello, are you on the call?
Nikunj Jain — NJ Investments — Analyst
Hello.
Rajaram Narayanan — Managing Director
You got disconnected. Yes, just ask your question, when do we see this business recovering, is that your question?
Nikunj Jain — NJ Investments — Analyst
Yes, so wanted to know the reason of further weakening of the Europe business, so what’s happening? What’s the situation there now and when do we start — when we see to see that this business will recover from the current situation?
Rajaram Narayanan — Managing Director
Yes, so thanks for the question. I think our Europe business which is a formulation business has got two components. There is a large component which means sell within countries like Spain, where we have a strong antibiotic based portfolio. And there of course we have a distribution portfolio where we distribute to some of the larger companies. What we’re seeing is really pressure coming at two ends. One is, in general, of course the economic condition, because this — all the European issues related to war, to increasing price of fertilizers and all of those things have resulted in a reduction in demand at the farmer level, and therefore we are seeing some pressure coming in terms of the demand-side. How long will that continue? I really don’t know, it’s a very macro sort of situation depending on the war and the pressures which are there.
The second question is really in relation to demand is the one on the control on antibiotics usage which has come through quite significantly in Europe. There we are immediately of crouse rejigging our portfolio and we think that in the next four to six quarters we should be able to adjust the portfolio and begin to see growth coming from that. But I think the larger question in Europe is the rise of some of the energy costs, input costs on account of gas and fertilizer etc., which is happening. And therefore our focus now is to make sure that we are profitable in Europe.
And therefore we are taking initiatives to make sure that while the markets eventually recovers, which we can’t predict right now, we will at our end, however, be very determined to reduce our cost base, make sure that we are investing in profitable products, improving our margin and therefore use this opportunity to create a fairly profitable robust business which is more sort of sustainable. So I would say that, if the economic and the situation comes back, then I think in about four to six quarters we should see top line growth coming back in Europe. But having said that, we certainly expect profit improvement coming in Europe very quickly because of the actions that we are taking.
Nikunj Jain — NJ Investments — Analyst
Okay. So, are we seeing and sort of lower normalization of the energy costs in Europe?
Rajaram Narayanan — Managing Director
I think we are — we cannot predict that right now, the energy costs did shoot up, they have stabilized a bit, but I think we can — we have to do what we can control and what’s within our control is to make sure that we are profitable, we don’t sort of chase costs which are not defendable immediately, and therefore make sure we’re on the right product mix and conserving cash and keep our profits, and I think that’s what — while at the same time use this opportunity to reshape our portfolio, because I think such kind of difficult situation gives us a very good opportunity to walk away from certain low-margin businesses, and at the same time invest in high-margin businesses when companies may be — when competition may not be taking the same kind of initiatives. So it helps us to prepare for a stronger business in Europe. But I don’t think we can look at stuff which we can’t control.
[Speech Overlap] Of course initiatives like look at alternative source of energy and things like that which we are implementing in our plants, but that having been said, we’re doing that in both Spain, Turkey, etc. But I think the key — in such — when a lot of the things are not in your control, I think we have to just make sure that we focus on the things which are in our control and keep ourselves more profitable and ready to take the advantage when the market sort of stabilizes.
Nikunj Jain — NJ Investments — Analyst
Got it. Just a broader question on the same [Indecipherable], so the last three-year CAGR if I see, it comes to around 5%, three-year CAGR of the business. So structurally is it a 5% to 7% growth market or even if everything normalizes and if we start getting back the top line, can we grow at a double-digit percentage?
Rajaram Narayanan — Managing Director
So look, right now in fact it depends on which portfolio you are in. I think the market right now is more in low-single-digit growth. On a CAGR basis, yes, the market was growing at 5% to 7%. But I would say that right now there are opportunities to grow certain segments of the market much faster but more from a profitable growth point of view. So I would say that which way this growth will go, I cannot say much about the overall market right now because it depends on many factors, but we are committed to making sure that our margins improve, and we are growing in what are the profitable part of the portfolio.
Nikunj Jain — NJ Investments — Analyst
Okay, sure. Thank you so much.
Rajaram Narayanan — Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Bhavya Shah [Phonetic] from JB Capital [Phonetic]. Please go ahead.
Unidentified Participant — — Analyst
Hello?
Operator
Yes, sir, you are audible.
Unidentified Participant — — Analyst
Thank you for the opportunity, sir. So I have two questions from my side. So the first question is, as we can see that gross margin has further declined by 100 bps in this quarter. So just wanted to understand is this the bottom or are we expecting any further deterioration.
Rajaram Narayanan — Managing Director
So, I’ll just invite Raghav to maybe give some comments on this.
P. V. Raghavendra Rao — Chief Financial Officer
See, from the business perspective, gross margin is stable. What has happened is because of this hyperinflationary accounting, we have had to take some hit on the gross margin. So it’s about 1.1% impact on the gross margin. If you remove that, the gross margins are stable.
Unidentified Participant — — Analyst
Okay. That helps. And my second question is, have we started seeing some cooling off in packing material cost or solvent prices, any prices changes or things?
P. V. Raghavendra Rao — Chief Financial Officer
Yeah. If you see YoY, we can see the RMC impact, but I think it has stabilized. The increase has a little bit of stabilized. So QoQ, the impact is not that significant.
Unidentified Participant — — Analyst
Okay. That’s all on my side. Thank you.
Rajaram Narayanan — Managing Director
[Indecipherable] prices have not come down yet.
Operator
Thank you. The next question is from the line of Vishal from Systematix. Please go ahead.
Vishal Manchanda — The Systematix Group — Analyst
Hi, good evening. Thanks for the opportunity. On the API business, you had talked about a $10 million supply order from a global top 10 company. So has that supply order commercialized?
Rajaram Narayanan — Managing Director
So just give me one minute, sorry. I’ll just give you the number. Hang on. So, yes, the $10 million has not yet materialized, but the start of the supplies certainly has materialized, and we have started in the last — in fact this quarter we have started supplying some of the requirements, and we are hoping that it will translate on an annualized basis to the full $10 million opportunity. But as I said earlier that it is — all customers are slowing down a bit on the demand side of it. So while we may not realize the entire value which was originally envisaged, I think we are — we’ve been qualified as the supplier to them, and therefore, we will continue to supply whatever are their requirements, and it could be somewhere in between the number which is there — which we have indicated, somewhere below that, but it is already started in terms of supply this quarter.
Vishal Manchanda — The Systematix Group — Analyst
You might not have booked a pro rata number this quarter, is that fair to assume?
Rajaram Narayanan — Managing Director
Yeah. I don’t think it’s a pro rata number yet because the initial quarter is always lower when you start.
Vishal Manchanda — The Systematix Group — Analyst
And should we expect the API business to bounce back in subsequent quarters or it will depend upon the macroeconomic situation overall?
Rajaram Narayanan — Managing Director
So I think the macroeconomic situation is what it is, and it has definitely impacted the overall opportunity. But I think I spoke to one of the speakers earlier. We expect the second half of this year to be a little better than the first half of the year, but not the kind of buoyancy which we were expecting earlier. But subsequently, I think with the larger regulated market contracts that we are finalizing, we should see a bounce back happening on the API business, but it will be a bit of a slow recovery, but in each quarter it should be better than the earlier, each half should be better than the earlier one going ahead.
Vishal Manchanda — The Systematix Group — Analyst
You have a large number of VMF, Veterinary Master Files filed in the U.S., but you would not be supplying most of those. So any sense on how these VMFs will get triggered into commercial supplies, say a number like maybe every year, do you expect some of these VMFs to be commercialized and add to your business meaningfully?
Rajaram Narayanan — Managing Director
Yeah. I’ll invite Mr. Sharat Narasapur Joint Managing Director, to answer that on how many would we trigger every year. Yeah.
Sharat Narasapur — Joint Managing Director
Certainly. There are multiple VMFs, and we are one of the leading VMF filers [Phonetic] and all have actually interest of customers. And I would guess that at least one would get commercialized because the commercialization process itself is a long-drawn process of validation and changing the source, etc. So certainly, we can expect to commercialize at least one of them.
Rajaram Narayanan — Managing Director
Every year.
Vishal Manchanda — The Systematix Group — Analyst
So one every year, is that how we should look at?
Rajaram Narayanan — Managing Director
Yeah. I think that’s reasonable to look at, but the value of each could be quite different depending on…
Vishal Manchanda — The Systematix Group — Analyst
Any sense on how large each opportunity would be?
Rajaram Narayanan — Managing Director
I don’t want to right now give an indication, but as and when we commercialize them, we will definitely be able to give you some indication on — depending on which one we commercialize first.
Vishal Manchanda — The Systematix Group — Analyst
Right, okay. And on Europe, just one thing, is there an incremental change on the regulations in terms of usage of antibiotics, or these are just the old regulation and the implementation has got stricter?
Rajaram Narayanan — Managing Director
I think you’re right. The regulations are more than three years old, but it has been staggered in the implementation and the markets where we have a significant presence right now, which is markets like Spain and the Mediterranean countries have been the last to adopt those regulations. And therefore, it’s been more aggressive in this period. But I think we were, in some sense, developing new products which are — nutritional products which are alternatives to the use of — extensive use of antibiotics. And therefore, I think we will see a shift in the portfolio mix, which should, at some point of time, balance out.
Vishal Manchanda — The Systematix Group — Analyst
What percentage of your Europe sales would be antibiotics now?
Rajaram Narayanan — Managing Director
Look, I think I don’t want to hazard a guess. Probably by the end of the call, I’ll try and come back and let you know what it is. But again, as I said, it’s not a ban on any of the antibiotics which we use. It is a decreasing usage of it because of the new regulation in terms of now requiring veterinarians to prescribe each of the antibiotics. And that generally, therefore, constricts the demand to some extent versus free usage, which was being the practice over there. But it’s a — that would restrict some of the access to antibiotics for farmers, etc., and therefore results in a periodic slowdown, and therefore, you would need to shift your portfolio to cope up — make up for that. Okay. Thank you. Any questions?
Operator
Thank you. We’ll move on to the next question from the line of Udit Bokaria from Catamaran. Please go ahead.
Udit Bokaria — Catamaran Advisors LLP — Analyst
Yeah. Sir, if you can just highlight what was the total albendazole sales…
Operator
Sorry to interrupt you, Mr. Bokaria. Please increase the volume of your device.
Udit Bokaria — Catamaran Advisors LLP — Analyst
Hello.
Operator
Yeah, please go ahead.
Udit Bokaria — Catamaran Advisors LLP — Analyst
Yes, sir. If you can tell us about albendazole sales in the API and how — what was the peak number two, three years ago?
Rajaram Narayanan — Managing Director
So our albendazole business, at a point of time about 3 years ago, used to be in about 15% odd of our total business. And today it is down to single — to less than 10%.
Udit Bokaria — Catamaran Advisors LLP — Analyst
And so when can we expect a bounce back? Because right now, I’m guessing COVID is gone and everyone has started going out. So when — how are you seeing the traction in this business?
Rajaram Narayanan — Managing Director
So we are — sorry, I think I’ll just invite Sharat to speak about it. Maybe, Sharat, you can also clarify on the [Indecipherable] numbers.
Sharat Narasapur — Joint Managing Director
The traction is certainly looking positive in terms of albendazole demand. However, you should realize that there is a pressure on the pricing. So that may skew the numbers. But in terms of volumes, yes, it is going up.
Udit Bokaria — Catamaran Advisors LLP — Analyst
And if you can share what has the pricing decline been in this molecule for this…
Sharat Narasapur — Joint Managing Director
Well, generally, as Raja was mentioning, there is a demand — when the demand has increased, there is an expectation on the pricing. So I can’t give you the numbers right now, but then the volumes certainly are growing.
Udit Bokaria — Catamaran Advisors LLP — Analyst
Okay. Thank you. Thanks a lot.
Operator
Thank you. The next question is from the line of Anand Trivedi from Nepean Capital. Please go ahead.
Anand Trivedi — Nepean Capital LLP — Analyst
Yeah, hi. My first question is, given the cost pressures in Europe, is there an opportunity to move some of the manufacturing in India and benefit from a lower cost in India?
Rajaram Narayanan — Managing Director
I think in Europe, what we manufacture and sell at this point of time are more the antibiotic range and the feed range and the nutritional supplements kind of products. And that India, from a point of view of supply from here in terms of — it’s not too competitive to be able to do that. There are also — it serves local markets over there, and therefore, there is the advantage of serving local markets from a manufacturing location over there itself because it’s a bit more on the agri side rather than on the pharma side in terms of the consumption channels. So it’s not so much of a distinctive advantage to do that in India.
Anand Trivedi — Nepean Capital LLP — Analyst
Okay. And given what’s happening in Europe, are there any M&A opportunities that are opening up out there?
Rajaram Narayanan — Managing Director
Sorry, can you just repeat the question?
Anand Trivedi — Nepean Capital LLP — Analyst
Yeah. So the question was, given the stress you’re seeing in the European markets, just the way you made the acquisition in India, are there any M&A opportunities opening up in Europe that you could look at?
Rajaram Narayanan — Managing Director
So, from a full-fledged company acquisition, we are always alive to that. But at this point of time, we’re not able to — we’re not in the play for anything. However, given that we have a strong commercial front end in Europe, not just in Spain but also in Benelux, in Italy, in Sweden. We are being considered for distribution by some of the large animal health companies. We already today distribute for 2 of the top 15 companies in these countries, and there are some others who are keen on looking at, and that is a fairly clean margin-driven accretive business. So that we are actively pursuing and there are opportunities which could come soon.
Anand Trivedi — Nepean Capital LLP — Analyst
Speaking of distribution, and I’m maybe a little [Indecipherable] on this in terms of my information, but how is the Zoetis distribution deal going?
Rajaram Narayanan — Managing Director
So we do that in India for their cattle range. And it’s been a very successful partnership now for nearly two years. And it is — we are growing that business over here in double-digits. And we are also getting a lot of support from them in terms of commercial excellence, in terms of sales force excellence, in terms of marketing support. And I think we see that business growing because this is also, therefore, the channel for them to launch any of their new products, which is what we are looking in the next one to two years coming from Zoetis. So it’s a double-digit growth business right now for us.
Anand Trivedi — Nepean Capital LLP — Analyst
Is there a number you can put on there in terms of the INR55 crores within the first half in India in revenues, how much is from Zoetis?
Rajaram Narayanan — Managing Director
So it is roughly around 40-odd — 40% to 50% of our business broadly would be, depending on the kind of quarter you are, because some of their products are at different seasons, depending on the therapy and the disease, but roughly about 40-odd percent would be the values they will have, the balance 50% of that.
Anand Trivedi — Nepean Capital LLP — Analyst
Okay. Thank you so much.
Rajaram Narayanan — Managing Director
Yeah.
Operator
The next question is from the line of Ashish Thavkar from IIFL AMC. Please go ahead.
Ashish Thavkar — IIFL Asset Management Limited — Analyst
Yeah. Thanks for the opportunity. Sir, excluding the cross-currency impact, would you like to quantify what kind of revenue growth we have done and also the core EBITDA margin to that extent?
Rajaram Narayanan — Managing Director
Raghav?
P. V. Raghavendra Rao — Chief Financial Officer
So QoQ growth in terms of — in the constant — sorry, you’re asking without currency impact, right?
Ashish Thavkar — IIFL Asset Management Limited — Analyst
Yes.
P. V. Raghavendra Rao — Chief Financial Officer
Yeah. So YoY on half yearly basis we grew at 4. 5% in Formulation and about — at the overall level, it’s about 1.2%.
Ashish Thavkar — IIFL Asset Management Limited — Analyst
Okay. And had this cross-currency impact not been there, what would be the kind of EBITDA margins we would have got to see?
P. V. Raghavendra Rao — Chief Financial Officer
Yeah. Without — in a constant currency basis, we would have grown at 7.5% on the reported sales in H1. So that would — you’ll be at least 2 to 2. 5 percentage points. So that’s a difficult number to give immediately. I’ll come back to you on that.
Ashish Thavkar — IIFL Asset Management Limited — Analyst
Okay. Yeah. No problem. Yeah. So just one last question. So the journey towards achieving 15%-plus EBITDA margins. So currently, first half we’re at 6% adjusted for all the ESOPs. Would you like to give any timelines as to when can we reach those mid-teens kind of EBITDA margins? Would it be two years, three years out?
Rajaram Narayanan — Managing Director
Yes. That’s certainly our aspiration to get it to that level in the next four to six quarters — four to eight quarters, I would imagine that we should be looking. But some of it will depend on the actions and how they turn out in the next two quarters. But without giving any sort of guidance, that’s certainly the ambition for us in a 2 years’ horizon.
Ashish Thavkar — IIFL Asset Management Limited — Analyst
Okay. Fair enough. And just one last question. Within the contract manufacturing space, are you guys tapping some other international customers because the kind of facilities that we have at our disposal, I guess, most of them are underutilized. So any plans as to how you would make sure the utilization levels go up?
Rajaram Narayanan — Managing Director
So on the API side, of course, we are — everything gets to other customers, right? It’s a B2B business. And therefore, there are some which are — we manufacture and we search for customers, and there is, of course, a portion where the CDMO kind of business where we are specifically developing for customers, right? So that’s there.
On the Formulation side, certainly in the facilities that we have right now in Europe, as well as in Turkey, we do some manufacturing for third parties in the sense, both — some degree of formulation work and packing. And that will continue, but that’s more — and any opportunity to fill up any of this capacity, provided it’s profitable, we would do it. But at this point of time, we — I think given the overall demand situation, we are not seeing any acceleration in it. We do some bit of it in Europe right now.
Ashish Thavkar — IIFL Asset Management Limited — Analyst
No, this is helpful. Thanks so much and all the best.
Operator
Thank you. Ladies and gentlemen, due to paucity of time, we will take one last question from the line of Aditya Khemka from InCred PMS. Please go ahead.
Aditya Khemka — InCred Capital Investment Advisors and Managers Pvt. Ltd. — Analyst
Yeah, hi. Thanks for the opportunity. Sir, one question on the acquisition. So how are we going to fund the cash consideration for the acquisition?
Rajaram Narayanan — Managing Director
So look at — we have clear plans. Obviously, it’s a combination of issue of preferential equity, which we have already declared. In addition to that, there is internal cash generation, as well as some restructuring of intercompany financing, and that’s what will — I think that’s what will get us into there. And so that’s the way we’re going to fund it. And more like at closing, we should get a clearer sense of how we would want to utilize the various sources that we have.
Aditya Khemka — InCred Capital Investment Advisors and Managers Pvt. Ltd. — Analyst
Understood. And can we talk about the German plant? I think given, again, the crisis in Europe, both on power side and other logistic costs, how do you feel the German plant is doing right now? And what’s the utilization there? And what’s the plan there? Because the understanding was that whatever we’ll produce in Germany, we are likely to sell in the U.S. Now with the costs of accelerating in Germany but not so much in U.S., is our production in Germany still going to be competitive compared to the local U.S. production?
Rajaram Narayanan — Managing Director
I think there are two components to it. The German plant also manufactures products for sale in Europe and other markets, emerging markets. So that part of the business is continuing. The second part of the German plant was to prepare it for manufacturing injectables for the U.S., and that was — we were expecting that we would trigger a U.S. FDA inspection and qualification later in this year or middle of next year. We’re trying to stick to that timeline because that would make it a facility where we would be able to manufacture. There aren’t too many places in the world where injectables for animal health products are manufactured even now. So we continue to remain on that.
But having said that, there is a cost impact, which has come there in terms of utilities, etc. So we are scaling back a bit in terms of the cost structure there in manufacturing, and we’ll be taking a closer decision on that more after we are clear when we can do the potential U.S. FDA readiness in the plant. So I think we’ll come back to you on that probably more in about six months when a lot of these moving parts would come in place and then we’d be able to take a better decision.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Rajaram Narayanan — Managing Director
Thank you very much for all of you who have joined this call. As I said, it is a challenging time for the entire industry. But at the same time, I think it is in these challenging times that it gives us a real opportunity to make some choices, make some more strategic decisions, and ensure that we are focusing on sustainable, profitable growth. And that’s what we are doing. We are making sure that whatever we are doing is not completely influenced by the circumstances of today, but we are readying ourselves to become a stronger, more sustainable business. And in that process, there will be the odd quarter where we will have to chin up and face it, but make sure that we are doing the right thing for the future. And that’s what makes us very confident that all the actions that we are taking right now will ensure that our SeQuent 2.0 strategy gets implemented. And I think the acquisition of Tineta, the agreement which we have signed, is one of the most definitive steps which we have taken in that direction. So thank you very much for joining and wish you a wonderful time for the rest of the year before we meet. Thank you.
Operator
[Operator Instructions]