Thread by @Mjkfinvestment

Brief Thread on Sequent Scientific 🧵

Market cap: 5762 crores
Revenues: 1179 crores
P/E: 59.94
P/B: 7.71
ROCE: 12.3%
ROE: 9.61%

Here we go 👇

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Until September 2017, SSL (standalone) was engaged in manufacturing human APIs but this segment was demerged following which SSL became a pure-play
animal health company;

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At present, SSL (consolidated) manufactures veterinary APIs & Formulations in its wholly-owned subsidiary, Alivira Animal Health Limited (AAHL), and offers analytical services to the pharmaceutical industry through another wholly-owned subsidiary -Sequent Research Limited (SRL);

It has 8 manufacturing facilities.

Vertically Integrated animal healthcare player with a strong global footprint.

Around 66% of SSL‘s revenues come from formulations while the balance 34% comes from APIs.

55% revenues come from the global top 10 animal health companies;

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Geographically looked at, over 90% of its revenues coming from outside India;

47% of its formations were sold in Europe, Emerging markets accounted for 21%, Turkey 18% & 14% LATAM as of FY20.

API segment continues to show traction on the back of capacity expansion:

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SSL is one of the world‘s leading producers of Active Pharmaceutical Ingredients (APIs) and claims to
be the world‘s largest producer of Anthelmintic APIs and the largest producer of animal health APIs in India.

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SSL has 27 commercial API’s with a pipeline of 14+ products across therapeutic areas such as anthelmintic, NSAIDS, beta-agonists, anti-protozoal, and ectoparasiticides;

The revenue from the API segment clocked a CAGR of 21% over FY15-20 and contributed 34% of revenue in FY20;

In FY20, Contribution from the top 10 products stood at 88% with the top 10 customers contributing 55% of total API revenue;

Sequent claims the Mahad site as the world’s largest facility making Albendazole, a widely used antiparasitic agent;

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Albendazole API revenue grew at a CAGR of 56% over FY17-20 on the back of strong volume growth of 35% during the same period.

The company has commercialized three APIs in the US market since its first product launch in FY19;

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In the last three years, Alivira has filed eighteen VMFs, with sole filing for six molecules other than the innovator;

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For further six filings, there are less than three competitors thereby establishing themselves dominant position in API filings and making their products a moat as compared to competitors;

SSL has a pipeline of 14+ products & expecting to commercialize six more products-

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-over the next 3 years in the US market.

Strong Financials; improving return ratios bode well:

SSL’s return ratios have improved substantially from RoE/RoCE of ~0.3%/2% in FY18 to 9.6%/11.7% in FY20;

Consolidated net adjusted leverage (Net Debt/EBITDA) improved to

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1.2x in FY20 (FY19: 1.6x; FY18: 2.6x), largely driven by the improvement in EBITDA generation;

In addition, Carlyle's entry as the promoter would leverage its global network that can help Sequent accelerate business growth, strengthen the operation, & product innovation skills.

Leading animal health companies:

Today, US pharmaceutical manufacturer Zoetis is the world’s largest company in the animal health sector, with total revenue of close to US $6.3bn in 2019;

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Growth Driver:

Increasing global consumption of meat and milk is escalating the demand for the animal healthcare market,

Increasing food-borne and zoonotic diseases have boosted the animal healthcare market,

The increasing trend of pet adoption is driving-

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-the market for animal healthcare,

(In the U.S., 68% of families reported they owned a pet in the 2017-2018 APPA National Pet Owners Survey, that figure is up from 58% in 1988, the first survey year).

The revenue from the API segment clocked a CAGR of 21% over FY15-20;

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In FY20, Contribution from the top 10 products stood at 88% with the top 10 customers contributing 55% of total API revenue.

Expansion of Vizag capacity:

SSL has a capacity of 225 KL at Vizag and is in the process of expanding the same to 350 KL;

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Vizag Plant is India’s only USFDA approved animal health API manufacturing facility.

US VMF fillings to support API growth engine:

The company has commercialized three APIs in the US market since its first product lunch in FY19;

In the last 3 years,-

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-Alivira has filed eighteen VMFs, with sole filing for six molecules other than the innovator;

SSL has a pipeline of 14+ products and expecting to commercialize six more products over the next 3 years in the US market.

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Key Risks and Concerns:

An outbreak of infectious disease carried by animals could negatively affect the sale and production of company’s products,

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Consolidation among top customers could negatively affect the pricing of SSL’s products,

Company’s profitability remains exposed to adverse fluctuations in foreign currency.

End of thread 🧵

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