Sequent Scientific Limited (NSE: SEQUENT) Q4 2025 Earnings Call dated May. 21, 2025
Corporate Participants:
Unidentified Speaker
Abhishek Singhal — Head of Investor Relations
Rajaram Narayanan — Managing Director and Chief Executive Officer
Saurav Bhala — Chief Financial Officer
Hari Bodepudi
Analysts:
Unidentified Participant
Amey Chalke — Analyst
Shiwani Kumari — Analyst
Thomas Priju — Analyst
Thomas Priju — Analyst
Sajal Kapoor — Analyst
Bhavesh Gandhi — Analyst
Bharat Sheth — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to Sequent Scientific Limited Q4FY25 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek. Thank you, thank you. And over to you sir.
Abhishek Singhal — Head of Investor Relations
A very good morning to all of you and thank you for joining us today for Sequence Scientific Earnings conference call for the fourth quarter and full year ended financial year 2025. Today we have with us Mr. Rajar Ram, MD and CEO of Sequence Scientific, Dr. Haribabu, Whole Time Director and CEO of Vash Life Sciences, Mr. Sourav, CFO Sequence Scientific and Mr. Ramakanth CFO Viasch Life Sciences to share the highlights of the business and financials for the quarter. I hope you’ve gone through our results release and the quarterly investor presentation which have been uploaded on our website as well as the stock exchange website.
The transcript for this call will be available in a week’s time on the company’s website. Please note that today’s discussion may be forward looking in nature and must be viewed in relation to the risk pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the investor relation team. I now hand over the call to Rajaram to make his opening remarks.
Rajaram Narayanan — Managing Director and Chief Executive Officer
Thank you Abhishek and good morning everyone and a very warm welcome to all the participants. Joining me on this call is Dr. Haribabu, Whole Time Director and CEO of Vyash Life Sciences along with Sourav Bhala, the CFO of sequent and Mr. Amakanth, CFO of Vyash. You would have gone through the results and the investor presentation which was released yesterday for the financials of quarter four and full year financial year 2425. My colleagues on the call and I are delighted to share with you more details and answer your questions today. Coming to the performance of this quarter, I am pleased to announce that we continued our strong performance and closed the last quarter of FY25 with revenues of 417 million rupees which is 401.7 crores reflecting a double digit growth of 11.2% over the same quarter last year.
I’m also happy to share that this quarter’s revenue has been the highest in the last few years and continues on the trend of sequential growth that we are seeing every quarter. This performance came in with a 38.7% growth in our pre ESOP EBITDA which grew to 56.9 million crores or 569 million rupees which translates to a margin of 14.2% which is broadly in line with the guidance that we have given for the exit margin for the year. The company sustained the strong momentum during the year as a result of various initiatives that it has undertaken over the last 18 months to strengthen the business fundamentals and prepare us for for the next phase of growth.
Coming to the performance for the full year financial year 2425 our revenues grew at a healthy 13% to reach 15,516 million rupees which is 1551.6 crores and at an EBITDA pre SOP of rupees 199 crores that’s a very very healthy growth year on year. While Saurabh will translate will talk a bit more about the financials in more detail let me cover some aspects of the business. Our formulations business which is the largest part of the company continues to trend very well. It sustained the high base of the last quarter and on a year on year basis it has grown in healthy double digits nearly 20% and that was driven by a strong performance across all geographies In Europe the growth in the year was led by new sales avenues which were created especially in vaccine partnerships, higher exports from Europe as well as the expansion of the fast growing phytosolutions segment in emerging markets.
The 26% growth was supported by a change in product mix towards better margin products organization restructuring in Mexico, higher export volumes from Turkey along with some very judicious price increases across the board. We believe that our position in these local markets where we have teams over there allow us to maintain a unique position in the key animal health markets of those countries and the regions which they are present in. And that remains a strategic priority for us in the long run as well. We’ve also initiated groundwork for the entry of the phytosolutions portfolio in the Latin American region.
The formulations business in India is a top priority for us. It has continued to do well on the back of field expansion that we undertook during the year and that has resulted in a 13% year on year sales growth which we expect to accelerate in the coming year. To further our presence we have identified the next set of levers which are required to build this business and it includes a second phase of field expansion in the early part of FY26 as well as new product introduction. We believe this will go a long way in building a very strong foundation for deeper penetration in India while also providing a platform for our brand building efforts.
On the API front, I’m quite pleased with the transformation in the business. The strength is visible in the improvement of margins and sequential recovery. We expect to see the acceleration from quarter one this year. Importantly, the fundamentals for growth are in place. We filed two VMFs during the year and our sales from our top customers. The top 10 customers grew vis a vis last year and the contribution has increased from 51% to 54% during this year. We also received WHO pre qualification for Albendazole and many prestigious awards for safety and quality. The long term relationship that we have with our global formulation companies helps us partner them in new product efforts and we expect to see some of the new business materialize in FY26.
With the forthcoming merger, we expect the benefits of R and D and manufacturing to flow in thus enabling us to grow faster and build new segments such as companion animals. I’d like to take this opportunity to thank the entire team of sequent Aloe Vera and all the stakeholders involved for their efforts and the support that they have provided this year which has resulted in a strong performance for the year but more importantly created the platform for future growth. I will now hand over to Saurabh to share the financial details of SpeakWind and then invite Dr.
Hari to share the highlights of the Vyash performance. Over to you Saurabh.
Saurav Bhala — Chief Financial Officer
Thank you Raja. Good morning everyone. It’s pleasure to join today and share key highlights into the strong financial performance of Sequence Scientific Limited for quarter four and for the entire financial year. Financial year 24 and 25. I’ll also provide an update on the progress of our strategic merger Starting with the Q4 highlights for Sequence Scientific Limited in Q4 25 we recorded a total revenue of Rupees 4017 million reflecting a strong growth of 11.2% year on year basis and a 2.8% growth on quarter on quarter basis. Our formulation business reported a revenue of rupees 3015 million delivering a 22% year on year growth.
The API business generated rupees 869 million in revenue delivering a 7% growth on quarter on quarter basis. Gross margins saw a notable improvement of 420 basis points on a year on year basis increasing from 46.1% to 50.3% in quarter four on a sequential basis. Margins improved by 210 basis points up from 48.2% to 50.3%. Our EBITDA pre ESOP for the quarter was rupees five thousand six hundred and ninety one million reflecting a robust growth of 38.7% year on year basis and a 15.5% rise on a quarter on quarter basis. The EBITDA margin stood at 14.2%, up by 280 basis points year on year basis and 160 basis points on a quarter on quarter basis.
The profit after tax for the quarter stood at rupees 103 million, improving substantially from rupees 13 billion in Q4 of last financial year which is a very remarkable growth of about 712%. Now coming to financial highlights for the entire financial year 2425 for the full year the total revenue delivered is rupees 15514 million marking a 13.3% year on year growth. The formulation business contributed rupees 11858 million registering a 19% increase on year on year basis. The API business reported a revenue of Rupees 3,378 million reflecting a growth of 4% on a year on year basis.
Gross margins for the year improved by 320 basis points from 44.5% in the last financial years to 47.7% in the current financial year. Driven by the various strategic initiatives including our sales mix optimization, geographical expansion, deeper market penetration and selective pricing actions across geographies. EBITDA Pre swap delivered is rupees 1,993 million for the financial year 2425, delivering impressive 18.6% growth on a year on year basis. The EBITDA margin expanded by 500 basis points increasing from 7.8% in financial year 24 to 12.9% in financial year 25. This reflects our consistent focus on driving profitable growth. We achieved a significant turnaround in tax improving from a loss of last year to a profit of rupees 322 million, a remarkable growth of 208.9%.
Now coming to the update on the merger process. I am pleased to share we have made meaningful progress on the strategic merger of VAS Life Science Limited and its subsidiaries along with one of our subsidiaries Research Limited into Sequence Scientific Limited. The milestone achieved so far are as follows. We got the Board approval for the merger on 26 September 24. We got the Competition Commission of India approval on 21 January 25. The stock exchange approvals is currently under progress and is at advanced level. We Expect the approval soon. Upon receiving the Exchange approval, the scheme will be submitted to NCLT or National Company Law Tribunal for the final clearance.
In summary, our performance for Q4 and the full financial year 2425 reflects the strength of our strategic plan and execution excellence focused on driving the profitable growth as a central theme. We are more confident than ever for the strong stronger growth continuity in the coming quarters based on the robust foundation created. We remain committed to creating enduring value for all our stakeholders with this now I hand over the call to Dr. Hari who will take you through the performance highlights of vaiash Group. Thank you.
Hari Bodepudi
Thank you Saurabh and Rajaram. Congratulations to Sequent team entire team for great performance and good morning all. Guys, let me take you through Vash performance now. Vash recorded strong performance in Q4 with the acceleration in revenue growth and margin expansion year on year and as you know our core strength remain R and D Manufacturing and intellectual property for Q4FY25 revenue grew by 15% to the corresponding year last quarter of INR 370 crores and adjusted EBITDA grew by 93% over last year same quarter to 65.3 crores. Vash had strong EBITDA margins of 17.6% continuously improving that EBITDA for full financial year.
Consolidated revenue of 1458 crores represents growth of 11.2% when compared to FY24 revenue of 1311 crores. Adjusted EBITDA for the full year FY25 254.6 crores represents a growth of 52.4% compared to FY24. EBITDA and EBITDA percentage improved from 12.7% in FY24 to 17.5% for FY25 during the year. Financially as FY25 the business has generated healthy free cash flow of around 201 crores. This shows that actually the company balance sheet and also we repaid borrowings about 145 crores during FY25. So with this repayment our current debt actually remains at around 74 crores and net EBITDA ratio is around 0.38.
We want to reiterate that lot of cost below EBITDA particularly exceptional items and amortization of acquisition intangibles are largely non cash or non recurring and steady state packed margins excluding exceptional items this year should be above 10% and also this reflected in our free cash generation of 200 crores in FY20. Business growth is supported by investment in critical areas and a Strong operating base which we’ll cover now for business a strong momentum across portfolio selection, validations, filing and launches, new product launches and filings. We filed four new products in last quarter and also we filed three products in this quarter.
Strong portfolio selection of course we have strength is R and D and portfolio. So we have 25 products in our portfolio which includes lot of NC minus 1 and also CCT. We completed four validations this quarter and we got six regulatory approvals from various countries. Operating base we look at our business across three segments and these are covered on page 18 for API as you know we have a well diverse portfolio of 70 plus products commercially which includes Ivalue and most of the products are little bit differentiated and medium volume products and also this reflects our top 10 products has grown at 23% CAGR over last three years and an average of very strong material margin of about 58%.
As you know we have a global customer base across 150plus countries and we have an extremely backward integrated manufacturing setup with cost leadership and have cleared multiple regulatory audits over the last decade and even this week there’s a Europe audit is going on at one of the site. It’s going pretty well so we are capable to handle multiple inspection whether in safety or Europe. Any country and strong is capable to manage everything. As a business has grown we have leveraged our innovator and large generic customers to build our development business. This is a key area for our future growth.
We have added almost 10 plus development contracts over the last two years which includes couple of products like life cycle management for innovators as well as few contracts with complex generic companies. We have a few small formulation business as you know in the US with local manufacturing we are moving that business to complex portfolio and integrating with our API to get cost leadership. Now moving to combined performance and measure benefits for Q4 FY25 combined revenue of the two entities grew by 13% year on year and EBITDA grew by 63% year on year. The combined business had an adjusted EBITDA of 120 crores in Q4 with 15.8% margins.
For FY25 combined revenue of the Q entities 12% and EBITDA grew by 66% year on year. So the combined business had an adjust EBITDA of 450 crores with 15.1% margins. The combined net debt EBITDA ratio is at 1x compared to 1.2x in previous quarter. As updated last quarter and also Saurabh updated the merger status we have started to plan for integration of the two companies and realizing synergies. We had received CCA approval of course as explained by Saurabh and most important we have made substantial progress in RND and manufacturing and will represent a granular action plan and estimate its energy value to the board.
We are going to present to the board sometime in first half of FY26. We had said last quarter that R and D will be big win for both companies and integration is going very well and we expect the measure process to close as explained by Saurabh in 12 to 15 months mostly by end of this year. Thank you. I think with this we can now open for questions.
Abhishek Singhal — Head of Investor Relations
Can we take the Q and A please?
Questions and Answers:
operator
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on Touchstone Telephone. If you wish to remove yourself from the question queue you may press Star and two participants are requested to use handsets while asking a question. Ladies gentlemen, we’ll wait for a moment while the question queue assembles. The first question comes from the line of Amay Chalke with GM Financial. Please go ahead.
Amey Chalke
Yeah, thank you for taking my question and congrats to the management on good numbers this quarter. First question I have basically the previous call we have been mentioning that we would get to a double digit kind of a growth and kind of a mid teens margins this quarter. We have already, we have already achieved that going ahead in FY26. What would be the outlook for the growth and margin? Sir?
Rajaram Narayanan
Thank you Amir. I mean yes, we had guided that we would and that’s on sequent alone. Right. We had said that we would come closer to a mid teen margin and double digit growth as we exited this year. And I’m happy that we have reached there. Clearly right now we will not be able to tell you a guidance for next year but I think we have already laid out the plan that by FY27 we are looking, you know, for sequence to come closer to, you know, high teens kind of a margin. And we would of course Vash with its performance would be more in the closer to the 20s range as far as the margins are concerned.
And therefore I think over the next 24 months we should be seeing the company reach there in terms of top line growth of course, you know, healthy double digit which should be anywhere in the mid teens is what we are expecting to do over the next two years. Dr. Hari, would you add to this?
Hari Bodepudi
Yeah. Overall, just to add to Rajaram what he mentioned, I can tell you Guys, whatever we achieved this quarter is pretty sustainable, okay? And of course, whatever we have guidance FY27, what Rajaram mentioned, we are pretty confident to do that. We may do little better than that. So we are pretty confident achieving sustainable growth.
Rajaram Narayanan
So you have seen in our investor presentation also that, you know, the pillars which are there for the growth. We have already, as Dr. Hari has just mentioned, the synergy plan as well as the benefits of the merger will begin to flow in during this next one to two year period. And therefore obviously, you know, the businesses in terms of the results which we have right now should be not only sustainable but they’re also likely to do better.
Amey Chalke
Sure. But just to clarify this 18% or high teens kind of a margin, what you said would be on standalone right before the merge as in the not including the merger synergies. Right.
Rajaram Narayanan
I think it’s a bit early for us to comment but very clearly we are on a combined basis. The company which we had guided earlier also should be looking, you know, closer to about. I think we are today right now about 3000 plus crores in terms of top line. And we are heading towards closer to a 4,000 crore kind of a figure, if not better in terms of top line in the next, you know, two to two and a half years. And we would be looking therefore at a margin profile which should be closer to 20% on a combined basis at least.
And I think that now, you know, we’ll keep updating you as the progresses, but that’s a reasonable thing to sort of move forward with.
Amey Chalke
The second question I have, is there any plan for us to enter into CDMO business and what are the opportunities considering the combined company in The CDMO.
Rajaram Narayanan
Site, Dr. Hari, I think would be best. Yeah, on that.
Hari Bodepudi
Yeah, absolutely. This year that’s one of the key focus actually expanding CDMO business as well as complex products development. As you see in VH already we do CDMA business. We have business with innovators, we do business with innovators, five, six clients. And also we entered another five, six development agreements with complex generics. Because the CDMA there are two things, two, three things, right? One is innovator business, life cycle management. Already we are there in the commercial and we are working with the new product. And the second thing is most important we see where there are opportunity for CDMO for complex generics.
There are many specialty companies in Europe us they only focus on marketing and portfolio. They always look for partners for R and D development as well as manufacturing. We see a lot of interest already. We signed three contracts so in last six months and it’s working pretty well. And this year we are going to focus a lot and expanding in the CDMO and you can see substantial change in the next year. I think that’s a great upside for next two, three years for this company because we are fully established to meet any CDMO customer expectations with respect to HSL quality or R and D.
All we have their capabilities. We are strengthening teams this year and you can see a lot of growth next year. One of the key focus area for us.
Amey Chalke
Sure. Thanks so much and I will join my team. Thank you.
operator
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Shivani with Monarch Network.
Shiwani Kumari
Hi, am I audible?
Rajaram Narayanan
Yes, Shivani.
Shiwani Kumari
So very congratulation for the excellent set of numbers. My first question is on tax rate for sequent in Q4FY25 the tax rate was at the higher range of 35 36%. Any specific reason for that?
Saurav Bhala
So tax rate for CQANT is a combination of various sum of parts across the geographies and there are impact which happens for the full year which gets counted in Q4. So there are slight adjustments which happen for Q4. But on overall year if you see it remains to be on a normal range. And I think that is going to be the new normal going ahead also.
Shiwani Kumari
Just to add on that. So what is the tax rate that we should build in for the next this year and the next year?
Hari Bodepudi
About 30%. 25 to 30. In that.
Shiwani Kumari
25 to 30%. Right. Okay. My next question is I also wanted to get some clarity on the new launches in the companion animal health segment that we are looking at. So I think that currently we have less than 10% companion animal health products. I just wanted to understand that how to look for this segment and what can be the contribution of the overall portfolio.
Rajaram Narayanan
Thank you. So right now the businesses which are more geared towards companion animals for us are in Europe as well as in Latin America. Over there we are. We have a range which is coming out now in the area of anesthetics which gets commercialized during this year. And that is the area which we are building very fast for companion animals. Apart from that there are nutritionals in Latin America which are getting launched. We are also looking at India seriously in the area of companion animals in developing a product portfolio. So I think we should see launches coming every quarter certainly in Europe and more towards end of the year in Brazil and in India.
Our Target would be that we should double the contribution of companion animals in the next three years in our portfolio.
Shiwani Kumari
Thank you so much. Can I continue?
Rajaram Narayanan
Yes, please. Yeah.
Shiwani Kumari
My next question is for Vyash. So Q on Q V Ash revenue we saw a decline of 3% and also there was slight drop in the margin also. So is there any specific underlying reason for the same?
Hari Bodepudi
So the sequential quarter drop is mainly because there’s some inventory buildup in finished product in the U.S. sivani, you know we have U.S. formulation facility so the customer they build a little more inventory in previous quarters. So that’s the phasing issue. So that’s how the drop actually 3% is basically from formulation but there is no gross margin drop on those things.
Shiwani Kumari
Sure. Thank you. I’ll join back in the queue for subsequent questions.
operator
Thank you. Next question comes from the line of Jagatin, an individual investor. Please go ahead.
Unidentified Participant
Hi sir. Am I audible?
Rajaram Narayanan
Yes, please.
Unidentified Participant
Thank you. Hi sir. Good morning. Congratulations for a great setup number. Sir, could you please explain a bit about the growth you are seeing in Europe and what are the products we. Sell in Europe and how is the. Outlook for Europe in the coming quarters or year?
Rajaram Narayanan
Yes, I talk about the formulation space. So Europe business has a large setup which is in Spain, which is both for manufacturing and marketing in Spain as well as manufacturing and marketing for countries in Europe. But we manufacture them in Spain. We, we have four sort of broad product categories over there. We have the antimicrobials, we have the anesthetics, we then have the painkillers and finally we have the dermatology and nutritional products. Now our growth which we are seeing in Europe is on account of two reasons. One is that we have a range which is for gut health, which is called phytosolutions and that’s the range which is, which is expanding fast because there is more and more preference in the use of natural additives for feed animals.
So that’s one area which we are growing. The second is in the area of anesthetics which are used for largely for surgery and hospital procedures for companion animals. That’s the piece which is growing for us. And we also are distribution business for some companies. So we have recently tied up for because we have a very strong front end in countries in Europe because that’s an important capability to have where we have feet on street over there in some countries in Belgium, Netherlands, in Spain, where people are able to contact doctors and veterinarian clinics. So we’ve also become a channel and a partner for vaccines, for food Production animals.
And that’s a business which started last year for us and we think that’s the other piece which will be growing. So I think based on the infrastructure where we have, we should be able to add more and more products for the infrastructure. So that’s the primary driver of growth for us. Apart from the other thing of course, in margins, you know, we are, because this is a better product mix than the traditional low end antibiotics, the margins are improving in Europe because the quality of the product mixes is changing. So that’s really the two sort of drivers for growth which are there in Europe.
We are of course not present in a few very large markets like France or UK and the distribution opportunity for our existing products in those markets would be the next obvious headroom for us to be able to go.
Unidentified Participant
Okay, my second question is how is. Our business in Turkey doing and are we being impacted by the recent political issues?
Rajaram Narayanan
So as far as the business in Turkey is concerned, it had had challenges which were there earlier in foreign exchange and economy and those have largely been addressed because of some of the actions that we took in terms of improving our exports from there in terms of price increases, et cetera. And of course the country situation also improved quite significantly in terms of the economic condition relating inflation, dropped, etc. So that operating business over there, it has come back and is doing well. In terms of the current sort of conversations which are there around Turkey.
We have to remember that the business in Turkey which we have is a local operation, it’s a local entity, it is in Turkey for Turkey and therefore it is meant really for sales and distribution within Turkey as well as some of the neighboring markets. There is no real dependence either on India or India’s dependence on Turkey as far as the business is concerned. Concerned because it is managed completely locally. So we don’t see any impact on that at all from the current sort of news which is going around on that. But it’s purely a local in Turkey for Turkey business.
Unidentified Participant
My last question is, could you give. Us any guidance for vyash standalone sales or margin for effectiveness?
Rajaram Narayanan
Yeah, Dr. Hari,
Hari Bodepudi
I think as Rajaram mentioned, we don’t give guidance but I can tell you we have pretty sustainable growth. Whatever the margins you see today, it will continue and definitely next 12 years, FY26, 27. We also mentioned earlier it’s going to cross 20% EBITDA margins. So it’s a pretty consistent sustainable growth.
Unidentified Participant
Okay, all the for the next.
Rajaram Narayanan
Yeah.
Unidentified Participant
Thank you.
operator
Thank you. Next question comes from the line of Thomas Bru With Al, please go.
Thomas Priju
Thank you for giving me the opportunity. Yeah. So I just wanted to clarify. We are talking of margins for Sequent. We are talking of 20% plus margins for Vash and close to 20% margins at the combined level by FY27 at. ESOP level or post ESOP level.
Rajaram Narayanan
So all the conversation that we have, all the comparisons are right now at a pre SOP level. Yeah, everything we do on a free soft level.
Thomas Priju
So how much should we budget for. FY26 for ESOP for both Sequent and VR and if possible even for FY27?
Rajaram Narayanan
We can give you a bit on what we know right now for Sequent because. Because the other pieces I think we will be, we would like to share only after we complete the merger process. But for Sequent we’ve. You should expect, expect around 30, 32 crores to be the ESOP cost for next financial year. Yeah. And it’s of course on a declining basis. That’s what it will be. They are trending downwards. And on the rest, I think once the formalities are completed, that is when we would. But I think as Dr. Hari also indicated, you know, fundamentally this is a business that is moving very clearly on a sustainable basis to the 2018-20% kind of a business with the highest Q on the positive side of 20 for Vash and maybe a point below, two points below for Sequent.
Thomas Priju
Understood. So we are looking at more than a 300bps expansion in terms of Sequent. And maybe 200bps in case of Vyash. Is it possible to provide some color. On what is the underlying factors which. Will lead to this margin expansion?
Rajaram Narayanan
I think on Sequent we’ve been giving it. First I’ll give a chance to Dr. Hari to sort of explain on the VR side and the API part of it and then we’ll add a top up on the sequent part. Yeah. Dr. Hari, on the margin expansion piece for you.
Hari Bodepudi
Yes. As you see in our investor presentation we have two initiatives especially you know we do every year, 10, 15 and most of the products are slightly differentiated or complex products. So year on year when you are developing 1012 products and we are able to launch at least six to eight products and all these products are new products and margins are reasonable. Good. And other thing, margin expansion for Vhash basically our current capacity utilization is around 60, 65%. When the revenue is growing, our OPEX percentage is continuously coming down. That’s where you can see from last two, three years it’s continuously coming down.
Our OPEX it straight A goes to bottom line margin. So there’s two, three things. One is our OPEX reduction. The second thing is all our new products, whatever we developed and filed expected approval. And the third thing is, as I mentioned, we are expanding business a lot in CDMO and other few complex areas. I think this will generate good business in FY27 28 and margin will be much better than what we anticipate. These are the three areas I can.
Rajaram Narayanan
Say that I think that. Thank you Dr. Ari. And that pretty much would be the typical model anyway. I think even for the formulations business, it’s largely going to be driven by an improvement in the mix of what we sell. Because I think that’s a big driver for growth in formulations as you improve the quality of the product mix with higher margins, which are a combination of the kind of therapies you are in as well as more and more as you move towards companion animals, the margins are substantially better. And second of course is a set of new products, introductions and innovations in these markets which we are already sort of seeing that momentum come in in FY25.
So the key, these are going to be the key two drivers for growth for the formulations business.
Thomas Priju
And does the slightly hostile environment with Turkey currently at the diplomatic level affect our business in any way in that country?
Rajaram Narayanan
No, I mean, I think I just answered on that question. The business in Turkey is in Turkey. For Turkey it’s a local company which had been acquired by us. It’s a robust business within Turkey and for the neighboring markets, I think there is no, you know, build commercial exchange in terms of exports, imports, etc. Of materiality between Turkey and India. I mean our Turkish business and India and therefore we don’t see any impact at all coming from this. It is completely an international operation for that part of the world.
Thomas Priju
On the VR side in terms of cdmo, are we trying to develop a CDMO work with innovators on the the ingredient side? On the final API side, is it possible to provide some color on what. Is the sort of CDMO work we. Are trying to develop?
Rajaram Narayanan
Sorry. So today what we do in CDM are two parts. One is with innovators we do APIs and also key starting materials, whatever. We send a few things, a few starting materials for most of these are for their life cycle management. Once IT patents comes out, they try to move their manufacturing from okay, expensive countries to India. That’s where we are able to get few contracts, few products, two, three APIs. We are there global supplier for that and second thing is we are able to get some contacts for advanced intermediates from innovators that will continue.
The second part where we have initiated last year it’s working pretty well. TDMO is complex generic or some specialty company. There are quite number of companies in especially Europe they identify the product but they look for CRO or cdmo. So we are able to attract that business and the advantage of that business is even unlike with innovator business we are able to get actually revenue for even R and D development as well as validation and most important actually we are able to negotiate with some profit share during their commercial sales. That’s a pretty well model.
We are able to attract two, three contracts already and this is going to continue. And also large Gen Z okay. And you know large companies they are struggling with their cost. That’s where they are looking for CDMO players not for matured products, contract manufacturing kind. They are looking for some CDMO players for the complex API. That’s where we are able to partner few generic companies actually few things partner with co investment taking risk together and taking profits also together and few things purely CDMO play. We partner with them with R and D and manufacturing and contract with manufacturer.
So basically these three areas at the next 12 years innovators we are going to do more and more life cycle management business both API and emits and most important complex API specialty companies. That’s a large focus Next. So this year is the building phase for next level whatever is phase one, phase two maybe we’ll start from end of 2006 26. That’s where we are trying to build little more infrastructure with that hope I answered your question.
operator
Thank you Mr. Praju. Please rejoin the queue for more questions. Next question comes from the line of Sajal Kapoor with anti fragile thinking. Please go ahead.
Sajal Kapoor
Yeah, hi, thanks for taking my question. Happy to see the gross margin recover and cross the 50% mark. However, our EBITDA conversion into cash flows for sequent stays too low. I mean not just for F25 but this has been very low around 45 odd percent EBITDA to OCF operating cash flow for almost four years now. And mainly due to cash getting stuck in, you know, things like receivables and higher than normal inventory. So the question really is how can we fix this in future.
Saurav Bhala
Thanks for the question. Your observation is right. It has been low but if you see quarter on quarter we have been focusing and improving very specifically on that area. In fact last financial year there was a significant operating cash Flow which got generated after I think two years which you mentioned and with a clear focus on optimizing our working capital across the geographies and and various other initiatives. We are taking this remains to be area where we’ll keep on improving quarter and quarter and next year is going to be substantially better than the last year.
Sajal Kapoor
That’s helpful, that’s reassuring and thank you so much. That’s the only question I had.
Saurav Bhala
Thank you.
operator
Thank you. Next question comes from the line of Bhavesh Kar with yes, securities. Please go ahead.
Bhavesh Gandhi
Yeah, yeah, Good morning. Thank you for the opportunity. So one question on the sequence API business. So any color or update here in terms of what we see the outlook over next two years in terms of growth drivers and any push and pull that we are seeing in this business that will be helpful because it is still a meaningful business for us. Thank you.
Rajaram Narayanan
Yes. I’ll just first say yes, it is an important business for us and we have been looking firstly on the revenue side to start sort of coming and crossing the 100 crore a quarter kind of a mark. I think we expect to get into that zone next year. There is a lot of work which is going on with the help of the team, with Dr. Hari and the Vyash team working both on the R and D and on the improvement of for the pace at which we’re introducing new products. So we certainly expect that this business will begin to accelerate towards the second half of next year.
In terms of the direction of the business, I think there are two clear areas. One is that future growth will come from acceleration of new products. We have some in the pipeline which are due to be commercialized. And the second is of course to make sure that our operating efficiencies are much better. That is something which is an inevitable outcome of the merger because I think we will get benefits coming in there. Of course these will take a couple of quarters before you begin to sort of get that in. Having said that, there’s a big shift in the interest in the company from the innovators and from large companies after we’ve announced the merger.
So we have more companies now coming to us to have conversations around new projects and I think that is going to be where we will get growth coming from because with the infrastructure of V Ash we should be able to give much more confidence around some of the new projects. On the existing business we are seeing an upside which is coming right now on the Albendazole business which we have, which is an important product for us because there is a requirement with the WHO part of the demand which is increasing. And we are one of the few companies which has the prequalified approval for WHO as well as the kind of grade that we supply which meets the quality requirements.
So I think there’s an inherent momentum which is coming on our existing business which will take us through for next year. But at the same time I think the second half of the year you’ll begin to see more acceleration coming with our announcements on new product development, etc. So that’s really the direction in which we will go. Dr. Hari, you would add anything on this.
Hari Bodepudi
I think you covered very well.
Rajaram Narayanan
I think it’s also important just to add that on the sheer margin profile, this business has substantially improved in the last 18 months. So I think we are on a healthier gross margin profile on the business and we therefore see that that gives us the leverage to sort of build on this business faster. Going ahead. Sorry. Okay, thank you.
Bhavesh Gandhi
Thank you.
operator
Thank you. Next question comes from the line of Bharat Seth with Quest Investments Advisors Private limited. Please go ahead.
Bharat Sheth
Hi, good morning sir. Am I audible?
Rajaram Narayanan
Yes, Bharat N. You’re audible. How are you?
Bharat Sheth
Dr. Rajaram and Ari Babu. Thanks for your asking. I mean rt congratulations on excellent performance and turnaround and more about that, about that is that setting up a new platform for accelerated growth in both top line as well as EBITDA side if I have to take down from say you have very up to 27 kind of a guidance but if I have to be on that so say three to five years perspective. How should we think about that?
Rajaram Narayanan
Yeah, that we are working now maybe next six nine months we are going to get that three to five years plan and if possible we’ll try to give guidance.
Bharat Sheth
Okay. And the second thing if you can give some color up to 7:27 you have given a vector size but below the EBITDA say for any non cash item on depreciation and interest as well as on the balance sheet side that will be more helpful sir.
Saurav Bhala
Yeah, definitely. We can give detail later. But if you see our balance sheets are going to strengthen day by day. So coming to Vash balance sheet even today it’s very strong balance sheet. When I mentioned actually we were able to pay debt 145 crores this year and this year FY26v ash is going to be debt free company and we’ll have some free cash and V Ash. Another thing is actually also that EBITDA below items as we mentioned couple of things actually. One is regular Depreciation, that’s not abnormal. The second thing is depreciation related to that goodwill.
That’s going away in FY27. Actually you can see almost 100 odd crores in this year. Okay, that’s going away in FY27. And sequent balance sheet also if you see, actually it’s improved a lot this year. Even that debt EBITDA ratio has come down to 1.9. But once we complete merger day one itself actually it starts going to be more or less debt free or very little debt and all our interest costs are going to go down. Big thing interest cost. You can see we are this year around 2530 crores and sequent is little higher. All these things will go away and we have leverage to do lot of new things.
That’s what we are going to think from next year.
Bharat Sheth
Okay. Okay sir. And I’ll wish you at the back and we’ll see you once we are ready with our 32 year fine.
Rajaram Narayanan
Sure.
Bharat Sheth
And to remain associated with our company for a longer period.
Rajaram Narayanan
Yes, thank you, thank you very much. Good times has started.
operator
Thank you. Next question comes from the line of Harris with Monarch Network Capital limited. Please go ahead.
Unidentified Participant
Hello. Yeah, hello. Yeah, yeah, my question was on the line. Can we narrow the margin expansion down to a particular product sale? When you talk about Albendazole based or certain other API based products. So is it possible to narrow it down?
Rajaram Narayanan
No, but because I’m saying these are one day, I think it’s an ongoing business so we can’t really give you a split between one. I mean there is clearly margin improvement comes from a variety of reasons. Right. I mean one it comes from like if you look like Dr. Hari said in the API business it will come from you know the new R and D pipeline which is over there. The new CDMO arrangements which will be there, there’s enough surplus capacity and therefore there will be an OPEX leverage which will come from there. In the case of formulations there are two clear routes.
Three clear routes. One is we already have close to 1000 FDF or fake dose formulation filings everywhere. So we have the ability to have geo expansion as in take the same products to different markets. Second is new products and the third is you know, change the composition of the product mix so that a larger part of higher margin products, products are part of that. So these are the levers. The real thing is about have we got the, have we built the strength to execute this? Because I think all of these things have come in place.
And last Year is an evidence that companies, we are able to execute it. So I think you should really look at it as the way we look at it, which is that these are the three big levers for us to drive it. Yeah.
Unidentified Participant
Oh yeah. Okay, sir, Understood. Thank you. I had one more question. So you talked about the vaccine opportunity that we have in Europe. Can you please expand on that?
Rajaram Narayanan
So we have the vaccine opportunity. Some of it is opportunistic and some of it becomes consistent once you launch the first vaccine. Right. So we have a field strength. We have physically salespeople who today are doing distribution for our products in Belgium, Netherlands, Spain, a small team which is there in Italy. So these are teams which are doing traditionally selling our own products. But there are vaccine companies which need a front end to be able to launch and distribute vaccines beyond just the three or four large multinationals. The other vaccine developers need an option to do that.
So we have tie ups where we work with the local agriculture or the government authority as and when there is a disease outbreak and we are able to source vaccines which are appropriate for that particular disease. Recently in Belgium there was an outbreak of something called a blue tongue disease, which is for sheep. We have a large presence of over there. The government required vaccines and this is. And we were able to distribute that. Based on that, we have now got tie ups for additional vaccines with the same company. And you know, we are looking at opportunities to be able to do that.
So we are not in the manufacturing of vaccines, but we are one of the important front end distributors as well as marketers of vaccines Europe.
Unidentified Participant
Understood, sir, understood. And I had one more question regarding the Zoetis distribution that we had stopped. So any update that in the India business?
Rajaram Narayanan
No, no. So. So we have not stopped. We continue to distribute for Zoetis the cattle product which is. And we are the sole distributors in India for that. Not just distributors, we actually have taken over that entire front end part of the business. There was an important product there which was pretty large. I think it was almost 12 to 14 crores of sales which got discontinued by Zoetis. And we are expecting that to get back in the coming financial year. And that was discontinued by Zoetis because of supply problems they had at their manufacturing site. And therefore it was not available.
So now we are working to relaunch that product in India and that will of course be incremental as it when it comes. But we’re waiting for them to confirm it. But otherwise the rest of the business of Zoetis continues and is growing for us.
Unidentified Participant
Understood, sir, thank you. Thank you for the opportunity.
Rajaram Narayanan
Okay, I think we take one more question. Yeah, it’s 9:57. One last question.
operator
Next question comes from the line of Kiran D with table three capital. Please go by.
Unidentified Participant
Thank you so much for the opportunity. I have two questions, one on V Ash and one on the combined entity. The question on V Ash essentially is do we see, I mean we have grown year on year about 11% in revenue. And I’m just focusing on revenue because given your pedigree we are sure the efficiencies will be squeezed. Right. So on the revenue do we have a confidence of growing by 20% on the revenue base that we currently have which is around 1500 crore over the next two years as in year on year. The reason why I’m asking this question is not for guidance per SE because top 10 products of VR we are close to 45, 50% market share globally.
So I don’t know if you have you know the ramp to grow at 20% year on year in VR. So that’s my first question on VR.
Hari Bodepudi
Okay. If you see our presentation also as we mentioned our top 10 products we grown almost 23% last three years. CAGR that shows our strength on the existing product. Why 11% last two years. You know we acquired these companies three years back and not many new products we got when we acquired. All the new product development or new arrangements with new clients are happening last one, two years. And also you can see lot of new products developed and filed. And the cycle time to develop file is generally three to five years kind of thing. So that whatever we develop last two, three years it started coming commercialization while maintaining our existing product growth, strong growth with the new product additions, definitely we’ll grow much better than what we have today.
And you can see lot of new products every year. Last year I think we were in top 10, we were in fifth place of filing total number of DMFs and you know, last 11 months, 15, 20 audits including 5, 6 FDA audits. That shows our strength of new products. Why FDA is coming. Actually that’s one of the reason we are filing more products. So the new products, whatever we filed, it’s going to grow next two, three years. That’s a big thing. While maintaining our existing products growth. So that’s where we are confident so to grow much better than what we have today.
On the top line, of course bottom line it will continue because as I mentioned our operational leverage, whatever our capacity utilization 60, 65 and continuously adding some capacity this year also we are adding some capacity for few products which are coming for launch. That’s where we can see growth.
Unidentified Participant
The CDMO leg of FY27. Would it take us to a 20% revenue growth? Sir, is that a fair assumption?
Hari Bodepudi
20% in CDMO? Yes. So I think if I put it today. Whatever we do innovators and few generic companies today it’s working out at 5.6percent of our revenue. But it’s going to grow substantially. But how much it’s going to contribute in 20% growth? We have to work. That’s 1 of the area. Of course.
Unidentified Participant
Got it. One last question on the combined entity. Sir. So we have in FY25 in the presentation we have exceptional items of about 102 crore. I understand all of this is non cash. But just trying to understand how we see through FY27. So exceptional item. We’ve seen 1 or 2 crore. Then we are seeing amortization of acquisition intangible hundred crore. So this is combined of 200 crore. Are all of this going away from FY27? FY26. Do we still expect some expenses to come here? And FY27 both of these items will be zero. Is that a fair assumption?
Hari Bodepudi
This amortization acquisition related to v hundred crore, right? That’s going. That’s going to go away in FY27. I think it will go completely in FY27. It will remain in FY26. Because it may come down. But it’s going away completely in FY27. That’s the remaining 102 crore. Sorry.
Unidentified Participant
Yes sir. Yes sir. Exceptional item 102 crore.
Hari Bodepudi
102 crores. I’m just looking at. Sourav. Can you help me? Where is this? Actually 102 crores by 2200 cross is the Samaritan combined, right?
Saurav Bhala
A balance. Doctor is for the provision.
Hari Bodepudi
Yeah. Yeah. Let me. Let me. This 102 crores. Yeah. There’s 102 crores. Majority are related to merger things. One is. You know we have some accelerated share warrants. And also there were actually some merger related expenses. And few things actually related to. Actually what are the contractual obligation for this merger. So all these 102 crores also will go maximum.
Unidentified Participant
Effect 26 it will repeat. But FY27 it will go away.
Hari Bodepudi
No, no. FY26 it will go away. Majority these are actually like this is purely one time amortization related will go in 27. It will remain 26. But this exceptional item 1 or 2. Say 1 or 2 crores maximum it will grow in FY26.
Unidentified Participant
Got it. Got it. Perfect. Thank you so much.
Rajaram Narayanan
Thank you. Okay, I think that’s the last question.
operator
Thank you. Ladies and gentlemen, due to time constraints, we have reached the end of question and answer session. I would now like to hand the conference over to the management for closing comments.
Rajaram Narayanan
Thank you very much for attending this call. It’s been a very exciting and successful year for the company, as well as how we are moving into the next financial year with the merger, which is on the card. So we look forward to giving you an update next quarter and look to forward forward to your continued support in asking these questions as well as participating on these calls. Thank you very much. Thank you. Thank you.
Saurav Bhala
Thank you.
Hari Bodepudi
Thank you.
operator
Thank you. Scientific Limited. That concludes this conference. Thank you for joining us. You may now disconnect your lines.