Animal healthcare yields rich dividends for Sequent

ET Intelligence Group: In 2013, when Indian pharma companies came under increasing scrutiny of the US Food and Drug Administration (USFDA), Mumbai drug-maker Sequent Scientific chose the road less travelled. It ventured into the less stringent, less regulated, and less price-controlled animal healthcare industry through expansions, including nine mergers and acquisitions.

The results have now started to show. In the latest quarter, revenues grew 27 per cent, and operating margins improved 310 basis points to 12.7 per cent. This resulted in a four-fold increase in net profit.

Margins should continue expanding with higher penetration in the more regulated markets. This is the 10th consecutive quarter of consistent growth. “We believe this is the result of the well-defined strategy we set ourselves a few years ago and our focus on execution,” said Manish Gupta, managing director, Sequent Scientific, in the latest investor presentations.


Sequent is now among India’s largest animal healthcare companies, and the only local entity to have US FDA-approved facilities. Commercial supplies have commenced to the US, the largest animal healthcare market. Strong R&D pipeline with more than 35 products under development should maintain the growth momentum, the company believes.

“We now have the largest API filings in the US among all generic companies globally… and this has also put us in a very strong position in this dramatically changing API environment, led by the China factor and the lack of reliability of Chinese supplies,” said Gupta in the FY18 annual report.

Sales are expected to grow about a fifth this FY (27 per cent in the first half), and analysts expect EBIDTA to jump from 10.4 per cent in FY18 to 13 per cent in FY19. In FY20, Sequent is expected to expand profit further because of high margin product launches in the regulated markets and business expansion, which should drive operating leverage.

Sequent’s global peers operate at EBIDTA margins beyond 20 per cent.

Valuations remain attractive for the fastest growing animal healthcare company – 1.54 times sales compared with more than 4.5 times for global peers. It now trades at 12 times EV to EBIDTA, compared with more than 20 times for most global companies.

Globally, top three companies (Zoetis, Merck and Merial) control about 37 per cent market share.

Sequent also owns Rs 200 crore worth of shares of Strides Pharma (13 per cent of mcap), the same promoter group company. The management has said that it would sell the shares at the right time. Promoter Arun Kumar has a history of creating businesses and then selling them.