*Sequent Scientific – Q2FY22 Concall Update – Nirmal Bang Sec.*
*Outlook – Positive*
*_Q2 was a perfect storm in terms of higher costs, though there is no qualitatively change in the business. The management has taken steps to mitigate cost inflation and to accelerate growth. Q3 should start witnessing recovery however full growth would be visible in Q4_*
The stock is trading at 25.8x FY23E consensus earnings
• While the cost environment is concerning for the industry, the company has initiated concerted efforts to mitigate the impact of the same and expect these to start reflecting on the margins in the coming quarter with full benefit from Q4 FY22.
• Sharp rise in input costs – APIs, FDFs; Logistical challenges continue - Expenses generally under control
• *Expect sequential improvement in margins*
• API
o Growth to accelerate in coming quarters
o Lower offtake of Albendazole, rest of the portfolio grows 25%+
WHO demand lagging due to closure of schools – no deworming program – recovery in H2
o *Stronger Q3 and Q4 orderbook, H2 to be back on growth track*
o Another long-term supply arrangement with a global top-10 animal health company - *management expects that this should contribute $10mn revenues in FY23*
o *API business is likely to be flat for FY22*
• Formulations
o Europe: 9.8% growth, sales back on track across geographies
o Turkey: Currency depreciation overshadows double digit growth of 11%, *hopeful to maintain double digit growth*
o India business growth moderated due to base affects of Zoetis commercialization in q2, FY21
• *Confident of maintaining mid-teens growth*