Sequent Scientific slumps 6% after Q1 loss widens to Rs 34.7 cr
Sequent Scientific, an animal health company focusing on active pharmaceutical ingredients and formulations, experienced a significant decline in its share price by nearly 6 percent during morning trading on August 11. This decline was prompted by the company’s financial report for the quarter ended June 2023, which revealed a widening of its net loss to Rs 34.7 crore.
At 10 am on that day, the company’s shares were being traded at Rs 95.04 on the Bombay Stock Exchange (BSE), reflecting a decrease of 5.93 percent from the previous trading session.
Comparatively, during the same period in the previous fiscal year (Q1 FY23), Sequent Scientific had reported a consolidated net loss of Rs 15.3 crore. This indicates a substantial deterioration in the company’s financial performance year over year.
The financial results were disclosed by Sequent Scientific in a post-market hours filing on August 10, providing investors and the market with insight into the company’s current financial status and performance.
It’s worth noting that the decline in share price and the widening of the net loss might be indicative of challenges or issues faced by the company during the specified quarter, potentially leading to investor concern and resulting in the negative market reaction observed.
In the first quarter of FY24, Sequent Scientific’s revenue from operations experienced a decline of 2.3 percent, amounting to Rs 333.2 crore. This is in comparison to the revenue of Rs 341.3 crore generated in the same quarter of the previous fiscal year.
Additionally, the company’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) also witnessed a significant decrease of 73.6 percent. The EBITDA for the first quarter of FY24 stood at Rs 2.9 crore, contrasting with the EBITDA of Rs 11 crore reported in Q1 FY23.
The decline in revenue and EBITDA suggests that Sequent Scientific faced challenges in generating sales and maintaining profitability during the specified quarter. These financial indicators provide insights into the company’s operational performance and its ability to generate earnings from its core activities.
Investors and analysts often closely monitor revenue and EBITDA figures as they reflect the top-line and profitability aspects of a business. The notable declines in both revenue and EBITDA might have contributed to the negative market sentiment and the subsequent drop in the company’s share price that was observed in the morning trading session on August 11.
Sequent Scientific’s EBITDA margin for the first quarter of FY24 was 0.9 percent. This is in contrast to the EBITDA margin of 3.2 percent that the company had achieved in the same quarter of the previous fiscal year. The EBITDA margin represents the proportion of earnings before interest, taxes, depreciation, and amortisation in relation to the total revenue generated.
The company has attributed the decline in its EBITDA margin and its overall financial performance to exceptional expenditures amounting to Rs 23.5 crore during the specified quarter. These exceptional expenditures can be further broken down as follows:
1. **Domain Expert Fees**: Sequent Scientific incurred domain expert fees totaling Rs 20.7 crore. These fees were related to efforts aimed at revamping its active pharmaceutical ingredients (API) manufacturing operations. This suggests that the company undertook measures to enhance or restructure its manufacturing processes, likely with the aim of improving efficiency, quality, or compliance.
2. **Tarapur Settlement Pay and Asset Write-downs**: The company also had exceptional expenditures of Rs 2.8 crore related to a Tarapur settlement pay and asset write-downs. This implies that Sequent Scientific had to make a settlement payment in relation to a matter related to Tarapur, and it also wrote down the value of certain assets, likely due to impairment or obsolescence.
These exceptional expenditures could have had a substantial impact on the company’s financial performance for the quarter, leading to a decrease in both revenue and EBITDA, as well as the widening of the net loss. Such exceptional items are typically one-time or infrequent charges that can significantly affect a company’s financial results for a specific period.
Overall, the combination of declining revenue, reduced EBITDA margin, and the impact of exceptional expenditures may have contributed to the negative market reaction and the subsequent drop in Sequent Scientific’s share price.
Sequent Scientific provided additional insights into its operational strategies and expectations for future performance:
1. **Operational Excellence in APIs**: The company expressed confidence in its ongoing program to achieve operational excellence in its active pharmaceutical ingredients (API) segment. It anticipates steady margin improvement as a result of these efforts. This suggests that Sequent Scientific is implementing measures to enhance efficiency, cost-effectiveness, and overall performance in its API manufacturing operations.
2. **Optimized Manufacturing Footprint**: Sequent Scientific mentioned that it has optimized its manufacturing footprint by discontinuing manufacturing operations in Tarapur. This indicates a strategic decision to streamline its manufacturing operations, potentially focusing on more efficient or profitable facilities.
3. **Q1 FY24 Performance**: The company acknowledged that its sales performance in Q1 FY24 was subdued due to transitional connectivity challenges. These challenges were attributed to network optimization efforts undertaken during the quarter. Despite this, Sequent Scientific is optimistic about the rest of the fiscal year, expecting an acceleration in both revenues and margins. This suggests that the company foresees improved sales and profitability in the coming quarters.
4. **Share Price Performance**: The shares of Sequent Scientific have shown a positive Year-to-Date (YTD) return of 7 percent, indicating some level of investor confidence in the company’s prospects. However, over the course of the past year, the shares have experienced a negative return of -8.65 percent. This mixed performance could be reflective of the various challenges and improvements the company has undergone during the specified period.
In conclusion, Sequent Scientific’s statement suggests that the company is actively working towards operational improvements, optimizing its manufacturing operations, and anticipates better financial performance in the upcoming quarters despite the challenges faced in the first quarter of FY24. The mixed performance of its shares over different timeframes reflects the evolving nature of its business and the market’s response to these changes.
