Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sequent Scientific Ltd (BOM:512529, Financial) reported a strong revenue growth of 17.1% year-over-year for Q1 FY25, reaching INR3,902 million.
- The company achieved its highest recorded quarterly EBITDA pre-ESOP in the last three years at INR483 million, translating to an EBITDA pre-ESOP margin of 12.4%.
- The formulation business, which accounts for three-fourths of the company's revenues, showed a robust growth of 21.1% year-over-year.
- Sequent Scientific Ltd (BOM:512529) received EU GMP certification for its manufacturing facility in Turkey, enhancing its export capabilities.
- The company has successfully completed its term loan restructuring, simplifying its borrowing structure and creating additional lines to support future business growth.
Negative Points
- The company faces challenges in the Turkey market due to inflation and currency fluctuations, although the environment is improving.
- Interest costs have increased due to the term loan restructuring process, which may impact short-term financial performance.
- The India formulation business is still in the early stages of expansion and may take time to deliver significant results.
- The company is not currently manufacturing vaccines but is distributing them, which may limit its control over this segment.
- Working capital days have increased to 110-120 days, up from the previous 80-90 days, due to geographical spread and logistical challenges.
Q & A Highlights
Q: Could you explain the reasons behind the increase in EBITDA margin this quarter? Can we expect this to continue for the rest of the year?
A: The increase in EBITDA margin is due to a combination of factors including operational efficiencies, product mix improvements, and price increases in key markets like Turkey and Europe. We expect to maintain this trend and aim for mid-teen margins by the end of the year.
Q: What is driving the high growth in Europe, and which markets are contributing to this growth?
A: The growth in Europe is driven by increased demand due to viral disease outbreaks, particularly in Benelux countries. Our agile response and strong partnerships have enabled us to support local governments with vaccines, contributing to our market share and revenue growth.
Q: Can you provide more details on the India formulation business and its growth prospects?
A: We have expanded our team by 40% and are focusing on launching new products and increasing market presence. We expect this business to accelerate in the next 12-18 months, with significant opportunities in both production animals and companion animals.
Q: Are you manufacturing vaccines, and what is the impact of vaccine distribution on your business?
A: We are not manufacturing vaccines but are distributing them for partners. This has allowed us to enter new markets and gain additional revenue, particularly in Europe where we have distributed vaccines for viral diseases.
Q: What are the future plans for the US market, and how does it fit into your overall strategy?
A: We have put the US project on hold for now, focusing on other markets where we see immediate growth opportunities. We may revisit the US market in the future, but it is not a priority for the next 12-24 months.
Q: Can you elaborate on the export opportunities from Turkey and their impact on your business?
A: Turkey serves as a base for exports to the Middle East and North Africa. We have seen substantial growth in exports, which helps hedge foreign exchange requirements and provides commercial benefits. Our Turkish facility has also received EU GMP certification, opening up new opportunities in the European market.
Q: What is your strategy for managing debt and financing potential M&A activities?
A: We are committed to disciplined acquisitions and have the support of our principal promoter for financing opportunities. We may explore different structures for larger transactions, but small bolt-on acquisitions and partnerships are manageable within our current financial framework.
Q: How do you plan to manage working capital, and can we expect improvements in this area?
A: We are focused on optimizing working capital despite geographical challenges and supply chain disruptions. While the situation may not improve immediately, we aim to gradually reduce working capital requirements as conditions stabilize.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
