Sequent Scientific Ltd. - A Pure-Play Animal Healthcare Business

Sequent Scientific Limited - Company Overview

Twitter Handle: @shuchi_nahar

Link to Animal Healthcare Related Articles:

https://myweekendspot.blogspot.com/2020/08/animal-health-care-industry-future-ahead.html

1) Company Profile

Incorporated in 1985, Sequent Scientific Ltd (SSL) undertakes its animal health business under the aegis of 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 de-merged with effect from October, 2017.

Alivira Animal Health Limited has emerged as India's largest and 1st Global integrated animal health company specialising in manufacturing of Active Pharmaceutical Ingredients (API) and Finished Dosage Formulations (FDF).

Sequent is India’s first integrated, global animal health company with an annual revenue run-rate of US$ 150 million. It offers API, branded generic formulations and analytical services. Over the past four years, company has invested more than US$ 80 million in their business, strengthening their R&D and manufacturing capabilities, and building market presence through our differentiated portfolio. 

Figure:1 Graph Showing comparison in Revenue 

2) Segment - Wise Overview

a. API

•       Accelerated momentum in the US with second product commercialization.

•       Highest filings among generic animal health companies in the US.

•       Relationships with global top 10 veterinary companies paying off with 1 billion revenues clocked in a single quarter.

•       Reported margin expansion through focus on regulated markets and high-value products.Fixed asset turn for the business now exceeds 1.9x for the year and we expect the growth momentum to sustain.

Figure:2 Graph showing Number of API's approved & API's in Pipelines

b. Formulations

•       EU grew 2.2% cc during the year, in line with the industry. FY 20 reported strong recovery with a 7% growth driven by nutrition business from Spain. Expect FY 21 to be robust driven by launch of new injectable approval.

•       Regulatory headwinds completely behind in Turkey revenue grew 66.9% cc in FY 20, steady growth expected in FY21.

•       LATAM grew 25.7% cc with both Brazil and Mexico robust growth, momentum to continue in FY21.

      Emerging markets grew 3.0 % cc in FY 20 Performance dragged by weak macro environment, especially India Maintain cautious approach in FY21 owing to uncertainty over collection.

Figure:3 Graph showing Number of formulation approved & formulation in Pipelines

3) Formulation in Detailed Breakup

Figure:4 Pie Chart showing detailed breakup for formulations

      Global animal health market size stood at US$33 billion in CY19 and is projected to grow at a CAGR of 4.9% to reach US$46.1 billion by CY26. The production animal segment accounts for a larger pie of 60% and the balance 40% is companion animals. Sequent, have strong capabilities to capitalise on these emerging opportunities.

      Production animal health market size stood at US$20.5 billion in CY19 and is projected to grow at a CAGR of 8.2% between 2019 and 2025. Companion animal health market size stood at US$12.54 billion in CY19 and is projected to grow at a CAGR of 6.2% by CY24.

4) Capacity Expansion - New Wave of Growth

     The capex spend in the next two years is expected to be Rs900mn, divided between India, for the expansion of the Vizag facility, and Germany, for the injectable facility. The project in Germany will start late as vendors will not be ready with orders in July (the initial timeline).

5) Capacity expansion of Vizag facility

    Sequent claims the Mahad site as the world’s largest facility making a widely used antiparasitic agent. API revenue grew at CAGR of 56% over FY17-20 on the back of strong volume growth of 35% during the same period. Given the strong demand outlook, the company is expanded Albendazole capacity by 33% which will provide strong headroom to tap growing demand for the product.

     SSL has a capacity of 225 KL at Vizag and are in the process of expanding the same to 350 KL. This will enable them to ramp up production volumes significantly in 2022.

6) Carlyle Group – To drive Growth in Future

•   The Carlyle group has strong healthcare side with investments around the world. The Carlyle group will help the company in fast-tracking growth in the US and China. Key benefits also include higher networking and better talent acquisition.

•    The Carlyle Group has signed up to acquire a majority 74% stake in Mumbai-headquartered animal health care company Sequent Scientific for over Rs 1,500 crore.

•       The transaction is being done through an equity purchase stake that values each share at Rs 86. The deal will be executed through two investment vehicles — CA Harbor Investments, affiliated entity of Mauritius, which is an affiliated entity of Carlyle.

•  The Carlyle Group has entered into a definitive agreement with the existing promoters of Sequent Scientific to acquire a majority stake and up to 74% in the company, including up to 26% equity shares from public shareholders.

•     This is an inflection point in the journey of the company as a Sequent can now leverage Carlyle's global network and resources to move to the next bit of growth and innovation.

•  Carlyle is no stranger to the Indian healthcare market, with a history of investing in the healthcare sector, both in India and globally, fuelled by deep understanding of the market, and an ability to create value through its operational expertise and close partnership with management.

•     This transaction is their largest control deal in India and is reflective of their confidence, both on the sector, as well as the business model of Sequent.

•       It’s believed with Carlyle as the new promoter group, Company is well poised to the new phase of development, where Sequent together with Carlyle will work to grow into one of the top global animal health care company. 

7) Roadmap for API & Formulations

a. Growth - API

•     Focus on regulated markets/customers and high value products continues to drive up fixed asset turn for the business, now 2.5x for Q4 20 (annualised) and 2.4x for FY 20.

•     Alivira is the # 1 Generic Animal Health USVMF Filer and # 3 Global Animal Health USVMF filer. Filed 2 Cox-2 inhibitor API in US making Alivira the only VMF filer.

      b. Growth – Formulations

    New multi-dosage R&D facility established in Mumbai to build regulated market pipeline 10 new filings in US in next 3 years. First time capabilities established to execute Ecotoxicity and Bio Equivalence studies in India First US injectable filed in FY20 for world’s largest animal health injectable product. 

       The first injectable was launched in the European markets and the same is expected to be launched in the US in FY22. The company currently does not have a direct presence in the US, which it is looking to build through acquisition which will be helped by the Carlyle group deal. Filed world’s largest animal injectable product in EU and US with an addressable global market of ~USD 350mn.

Geographical Scenario

US business: The Company expects the pipeline in the US to fructify from FY22 to FY24. All deliverables are on the API side and hence growth in the API business will be driven by the US business. After 18 months, the company will start launching formulations in the US with the launch of the blockbuster injectable project.

Europe business: The European business grew 2.2% (CC), which represents growth in line with the broad market. The injectable product will be launched in 11 European geographies by the end of November this year. In geographies like France, where the company doesn’t have a strong presence, the company will launch injectable both individually as well with partner. The competitive intensity for the product should be mild with about 3-4 players.

Turkey market: The Turkey business showed a 66.9% growth in FY20, which signifies that the regulatory issues are behind.

8) Well established relationship with Global Majors

       SSL’s customer profile consists of global majors across both animal and human health segments. Under the veterinary segment, the company continues to supply its products to 8 out of the top SSL’s customer profile consists of global major’s animal health companies including Zoetis Inc, Merck Animal Health, Bayer Animal Health, Virbac, Ceva, Vetoquinol, Boereinger Ingelheim, etc.

       By virtue of its large customer base, the company’s customer concentration is moderate thereby mitigating the risk of order volatility. Established relationships with a wide base of customers coupled with the regular addition of customers have supported the healthy revenue growth of the company over the years. 

      Going forward, the company’s customer concentration is likely to reduce on the back of the company’s efforts to enter into newer products across segments in addition to catering to new customers across geographies. 

9) Extraordinary presence across the Globe

       Company has steadily built a diversified portfolio of 1,000+ finished dosage formulations (FDF) across 12 dosage forms. Their therapeutic segments include feed supplements, antibiotics, anthelmintics, antibacterial, skincare (dermatology) products and disinfectants with more products in the pipeline. Company is market leaders in segments like intra mammaries, spot-on and pour-on.

Sources: Sequent Scientific Limited - Annual Reports, Investor Presentation, Con-Call Transcripts                        B P Wealth Initiating Coverage Report. 

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