Sequent Scientific Ltd. share price target

A turnaround story

Sequent Scientific (SSL) has posted revenue of INR 3,580mn with a 0.8% YoY increase, which was 14.6% above our estimate of INR 3,124mn. The revenue beat was mainly driven by higher than expected growth in formulation business (mainly in Turkey); However, API business de-grew by 20.1% (YoY) due to lower offtake of Albendazole (key product in API). Moreover, Logistical challenges (port congestion, vessel availability) has also impacted API sales in Q3. The formulation business grew by 18.5% (YoY), led by strong performance in LATAM (+52.6% YoY) and Turkey (+34.2%) on a constant currency basis. India business performed well across both Cattle & Poultry segments with a growth of 20.5% (YoY). Revenue from Emerging markets (ex India) declined by 3.4%. Management expects a strong recovery in the API business during Q4 supported by a strong order book and revival in...

Sequent Scientific (SSL) has posted revenue of INR 3,506mn with a 1.2% YoY increase, which was 13% above our estimate of INR 3,102mn. The revenue beat was mainly driven by higher than expected growth in formulation business; However, API business de-grew by 10.4% (YoY) due to lower offtake of Albendazole (key product in API). The formulation business grew by 6.1% (YoY), led by strong performance in LATAM (+34.5% YoY) and Europe (+10.3%). India business growth moderated (+4.2%) due to the base effect of Zoetis commercialization in Q2FY21. Currency depreciation overshadows double-digit growth in Turkey business (de-grew by 6.6% YoY). Revenue from Emerging markets declined by 23.4%. Management expects a strong recovery in the API business during the second half of the year. EBITDA margin witnessed a sharp contraction of 1067bps to 5.6% level (lowest in last four years), which was 632bps lower than our estimate due to negative operating leverage in API business and higher employee cost (due to ESOP). Despite income tax credit (tax rate 250% vs 20.7% in Q2FY21), reported PAT came at INR 143mn (-52.8% YoY) compared to our expectation of INR.159mn due to operationally weak performance. Management maintained revenue...

to 18.5% level, which was 111bps higher than our estimate driven by positive operating leverage. SSL Key Data reported a PAT of INR 372mn compared to our estimate of INR 302mn (23% above our estimate) led by operationally strong performance. Management maintained its revenue growth guidance of the mid -teen level. However, trimmed down margin growth guidance to 100bps (from earlier 200bps) YoY for the medium term due to remain competitive in the challenging pricing environment. The company...

driven by positive operating leverage. During the quarter the company incurred one-time expenses of BSE code INR 90mn (onetime bonus and ESOPs of INR 52.1mn and INR 38.3mn related to discontinuation of Alivira France operations) under Exceptional item. SSL reported a PAT of INR 213mn compared to our estimate of INR 250mn. Adjusting onetime expenses, the Normalised PAT came in at INR297mn...

Incorporated in 1985, SeQuent Scientific Ltd (SSL) undertakes its animal health business via Alivira Animal Health Limited, which is engaged in manufacturing veterinary APIs and formulations. Earlier SSL was engaged in the manufacturing human APIs, which has been demerged with effect from October, 2017. SSL is now involved in manufacturing Praziquantel a human and animal API and intermediates. SSLs subsidiary - SeQuent Research Limited - offers analytical services to the pharma industry. SSLs (consolidated) portfolio consists of about 23 commercial products in animal health API and over 500 products across 12...

We met the management of Sequent Scientific (Sequent) to gain an insight into the company's animal health business. Sequent is a vertically integrated, global animal health company with seven manufacturing facilities in India, Spain, Germany, Brazil and Turkey. Formulations contributed ~75% of total revenues in FY18 with the rest from API segment. In formulations, the company has a strong presence in Europe, Latin America, Turkey, India, Africa and Southeast Asia markets. Recently, it forayed into France and Ukraine. In API segment, top 10 global animal...

Demerger of the Human API Business into Solara Active Pharma Sciences Limited which will
also house the Commodity API Business of Strides Shasun Limited, will help achieve critical
scale & size and emerge as one of the largest API companies from India. This decision, to part
with the business from Sequent was taken considering the dynamic regulatory landscape in
API industry along with the growing opportunities for a pure-play API player from India. The
demerger awaits the final nod from the National Company Law Tribunal, Mumbai, and will
be value accretive for its shareholder.