THE BEST STOCK

TO ADD TO
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THIS MONTH
IS HERE!
FEBRUARY 2021
SEQUENT SCIENTIFIC LTD We analyze 4000 stocks; we
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 STOCK OF THE MONTH

SEQUENT SCIENTIFIC LTD

CMP Rs. 235.60 WHO SHOULD BUY
Price as of 9th Feb 2021
Risk Appetite High Risk
Decision BUY Expectations High Return
Portfolio Sector Exposure <30% (Pharma)
SUMMARY
• This is a unique pharma company having a presence in the
If sector exposure > 30%, use Portfolio Optimizer
Animal health API and formulation business. tool
• IHS Markit has declared it as the best animal health company STOCK INFO
in India for two years in a row.
BSE 512529
• The company has a very ambitious plan to grow and break
into the Top 10 animal health companies from present 20. NSE SEQUENT
Mid Cap (Rs. 5,851
• It has roped in Stonehaven-a animal health consultancy firm- Market Cap
Cr.)
to chart out the next level of growth.
Sector Pharma
• The company's Vizag plant is the only plant from India which
USFDA compliant for API for animal health.
52 w L/H (Rs.) 52.00/245.00
Average Vol (6M) 17.52 Lakhs
• The company restructured its business by divesting specialty
chemical business and spun off human API business to a Equity Capital (Rs.) 49.67 Cr
new company called Solara Active- a listed firm.
Book Value per share
29.91
• The company has been reporting consistent growth every (Rs.)
quarter. STOCK PERFORMANCE
• Despite challenging scenario, the company in the first nine
Price as of 09 Feb 2021
months of the current year reported top-line growth of 15
percent and net profit growth of 65 percent.
Period 1M YTD 1Y 3Y
• The company enjoys a higher cash flow to EBIDT ratio. The Sequent Scientific
company has given guidance that it should be able to 26.91 38.92 159.47 210.61
Ltd (%)
maintain in the region of 75-80 percent.
Sector Index (%) -3.68 -1.56 48.05 44.97
• The higher cash flow from business the company is using for
paring down the debt. Sensex (%) 5.22 7.49 24.76 50.94

• Due to continuous improvement in the financial ROCE of the

company crossed 20 percent. KEY RATIOS
• The company has indicated that its revenue will grow in Mid-
PE ratio (TTM) 56.40
teens, and margins would be in the 20s.
PB ratio 7.69
• The stock market loves companies having Private Equity firm
Dividend Yield NA
as a promoter, and Carlyle-the US-based PE based firm- is
the new promoter of the company. ROE (TTM) 11.48%
ROCE (TTM) 20.98%
• Normally unique companies like SeQuent command higher
valuation. D/E -0.05
• The company enjoys a score of 77 with good quality, very
EPS 2.81
positive December numbers, and bullish technical indicators EPS (diluted) 2.85
suggesting an upward trend.

9 February 2021
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 Stock of the Month: SEQUENT SCIENTIFIC LTD
INVESTMENT ARGUMENT
The stock market loves unique companies. This holds not only in India but globally. This time I have selected a unique company -
Sequent Scientific. Unlike many other pharma companies that are in the human health business, this company is into the animal
health business. The company is India's largest animal health company and ranked among the top 20 in the world.

It has set an ambition to become among the top 10 animal health companies in the world. Two years in a row, IHS Markit has
chosen the company as the best animal health company from India, Middle East, and Africa.

There are a couple of reasons that make me believe in selecting the company.

The first company has a new promoter -Carlyle- a US-based private equity firm-owning a 53 percent stake. Carlyle made the open
offer in 2020 at Rs 86. The Carlyle coming in as a promoter has resulted in the re-rating of the counter. The stock market loves
PE-owned companies as they have created good wealth for the investors.

The company under new promoters is likely to move into new markets and new areas of business. They have roped in
Stonehaven- a niche health consulting firm- for the same. The management informed that Stonehaven would help the company
to expand the product range and geographical reach. With Carlyle coming in as promoter, the company's focus on US business is
likely to accelerate. The company may also venture into China market-which is the second largest animal health market globally.

There is one more factor I believe the company can be re-rated if the company announced its plans for CDMO (contract
development and manufacturing organisation) business in Animal health. There are not many companies across the world that
are exclusively in the CDMO animal health business. In India, companies like Divi's did extremely well in the CDMO space but on
Human health.

The company in the past did restructuring as well as acquired business for inorganic growth. It had a specialty chemical business,
which it divested. In 2018, it carved out Human API business by allotting shares in the new company called Solara Active and
listed the business separately. The reason for restructuring was that the company wants to focus only on the animal health
business.

The company has two businesses within animal health business-Formulation and API. Most of the revenue is comes from its
subsidiaries. Formulation business contributes a larger portion of the revenue while API business contributes the rest -but the
growth rate is faster. For the first nine months ended, the December 2020 formulation business accounted for two-thirds of the
revenue and the rest by API. Formulation grew at 12 percent in the first nine months, mainly driven by Europe, LATAM, and India,
while emerging markets as a region saw some decline. The company face some headwinds in the third quarter in Europe due to
the new lockdown but did not impact overall numbers. In the post-December quarter concall, the company indicated that it's
looking at Mid-teen growth in top line and margins would be in Mid 20s. Even Bird flu is not going to impact the business
significantly. Hence there are not many worries in terms of growth. December quarter was the 15th consecutive quarter where
the company reported growth.

For the nine months ended December 2020, the company reported consolidated revenue of Rs 1015 crore - a growth of 15.5
percent while the bottom line grew at a healthy pace moving to Rs 87.8 crore- a growth of 65 percent. The company's cash flow
from the business is robust and stood at Rs 160 crore against EBIDT of the same period of 177 crores giving cash conversion to
EBIDT of 90 percent. But management has indicated that 90 percent may not be sustainable for the long term and given 75-80
percent guidance for cash conversion to EBIDT. The company is using cash flow to pare down the debt. The effect of the lower
borrowing cost will reflect in the last quarter of FY21. The company aims to be net debt-free in the next 15-18 months. The
company does have some capex of which its plant's debottlenecking at Mahad has been done, and Vizag expansion will go on
stream by Q4. The effect of the same will be fully reflected in FY22 financial numbers. The company's Vizag site is India's only
USFDA-authorised and EU GMP-compliant facility focused on producing active pharmaceutical ingredients (APIs) for the animal
health sector. Due to improving financials, the company's ROCE has improved and now crossed 20 percent.

In our internal parameters, SeQuent is doing well. The quality of the company is good. The December quarter's financial trend
was very positive, and technically the company's share price is in the bullish zone, indicating further upside. The company's
valuation is very expensive, but a company like this normally commands and sustains a higher premium.

The score of the company is 77. It is a unique company to have in the portfolio. It offers good diversification within the portfolio.

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 Stock of the Month: SEQUENT SCIENTIFIC LTD
Exhibit 1 Exhibit 2
Sequent Scientific vs Benchmark (Returns) Sequent Scientific Price Movement
Sequent Scientific Returns (%) Sensex Returns (%) 250

210%
200
180%
150%
150
120%
90%
60% 100

30%
0% 50
-30%
-60% 0

Feb 2018

May 2018

Feb 2019

May 2019

Feb 2020

May 2020

Feb 2021
Nov 2019
Aug 2018

Nov 2018

Aug 2019

Aug 2020

Nov 2020
Feb 2018

Feb 2019

Feb 2020

Feb 2021
Oct 2020
Apr 2018

Oct 2018

Apr 2019

Oct 2019

Apr 2020
Jun 2018

Jun 2019
Aug 2018

Dec 2018

Aug 2019

Dec 2019

Jun 2020
Aug 2020

Dec 2020

Exhibit 3 Exhibit 4
Sales Growth - Consolidated Gross Profit Margin - Consolidated

Net Sales (Rs Cr.) QoQ Growth% 50.0% 49.2% 49.3%

48.9%
380 14%
48.0%
12% 12% 46.8%
360 11%
10%
8% 46.0%
340 3%
6%
320 4% 44.0% 43.6%
-5% 3% 2%
300 0%
42.0%
280 -2%
-4%
260 -6% 40.0%
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20

Exhibit 5 Exhibit 6
EBITDA Growth - Consolidated EBITDA Margin - Consolidated
EBITDA (Rs Cr.) QoQ Growth% 20.0% 18.5%
18.0% 16.4%
70 18% 40% 15.8% 16.3%
35% 16.0% 14.9%
35%
60
30% 14.0%
50 25% 12.0%
14% 20%
40 11% 10.0%
15%
10% 8.0%
30
5% 6.0%
20 0%
4.0%
-5%
10 2.0%
-11% -10%
0 -15% 0.0%
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20

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 Stock of the Month: SEQUENT SCIENTIFIC LTD
Exhibit 7 Exhibit 8
PAT Growth - Consolidated PAT Margin - Consolidated
PAT (Rs Cr.) QoQ Growth% 12.0% 11.1%

45 86% 100% 10.0%

40
80% 7.9%
35 8.0% 7.6%
60%
30 6.1% 6.2%
25 40% 6.0%
34%
20 20%
4.0%
15
-2% 0%
10 -13% 2.0%
-20%
5 -24%
0 -40% 0.0%
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20

Exhibit 9
Variance Analysis - Consolidated
Dec-20 Sep-20 Jun-20 Mar-20 Dec-19 Comments
Grown QoQ by 3% and
Total Operating income 358.21 346.27 310.27 300.58 316.42
YOY by 13%
Total Expenditure (Excl
291.9 289.88 259.25 255.85 266.44 Grown YOY by 10%
Depreciation)
Operating Profit (PBDIT) Grown QoQ by 18%
66.31 56.39 51.02 44.73 49.98
excl Other Income and YOY by 33%
Other Income 2.81 2.64 1.55 1.83 0.98 Grown YOY by 187%
Grown QoQ by 17%
Operating Profit (PBDIT) 69.12 59.03 52.57 46.56 50.96
and YoY by 36%
Fallen QoQ by 16%
Interest 6.2 7.36 7.65 9.33 9.6
and YOY by 35%
Fallen QoQ by 13%
Depreciation 11.59 13.3 13.03 13.09 13.05
and YOY by 11%
Grown QoQ by 75%
Profit Before Tax 51.33 29.32 31.89 24.14 28.31
and YoY by 81%
Tax 11.64 7.96 7.42 5.91 4.25
Grown QoQ by 86%
Profit After Tax 39.69 21.36 24.47 18.23 24.06
and YoY by 65%
Exhibit 10
Margins - Consolidated
Dec-20 Sep-20 Jun-20 Mar-20 Dec-19 Avg. (4 Qtrs.) Comments
GPM 46.82% 49.27% 43.59% 48.90% 49.17% 47.73% Lower than Average (4 Qtrs)
Higher than Average (4 Qtrs)
OPM 18.51% 16.28% 16.44% 14.88% 15.80% 15.85%
- Promising
Higher than Average (4 Qtrs)
NPM 11.08% 6.17% 7.89% 6.06% 7.60% 6.93%
- Promising

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 Stock of the Month: SEQUENT SCIENTIFIC LTD
Exhibit 11
*Revenue by Industry Practice – First Nine Months of FY 2021

API
35%
Formulation business constitute 65% of
the entire composition

Formulations
65%

Exhibit 12
Shareholding Snapshot

Non-
Institutions
31.30%

FIIs have increased holdings from 8.37%

to 10.20% in Dec 2020 qtr.
Promoters
Other DII's 53.86%
0.13%

Mutual Funds
4.51%
FIIs
10.20%

COMPANY BACKGROUND
Sequent Scientific Ltd is a leading manufacturer, exporter of specialized quality formulations having
an objective of full filling the diverse demands of pharmaceutical industry. Ever since inception in
2002 SeQuent has emerged as an integrated pharmaceutical company with a global footprint,
operating in the domains of Animal Health (API and formulation).
They cater to unaddressed global market requirements and focus on products for livestock, poultry
and companion animals. Their value proposition includes laboratory and technical support services.

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 Stock of the Month: SEQUENT SCIENTIFIC LTD
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May 2020 September 2020
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June 2020 October 2020

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July 2020 November 2020

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30.52% 5.32%

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August 2020 December 2020

TATA CONSUMER PRODUCTS EID Parry (India)

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 Stock of the Month: SEQUENT SCIENTIFIC LTD
Our Past Stock of the Month Performance
January 2021
HCL TECHNOLOGIES LTD

-4.29%

View Report

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 Stock of the Month: SEQUENT SCIENTIFIC LTD

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 Stock of the Month: SEQUENT SCIENTIFIC LTD
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