Sequent Scientific's Q1 FY26: Double-Digit Surge in Revenue & Profits. What's Driving This Animal Health Powerhouse?

This earnings season, while pockets of caution linger across various sectors, one company that appears to be confidently marching to its own beat is Sequent Scientific Limited. The animal health pharmaceutical specialist, alongside its strategic partner-in-merger Viyash Life Sciences, has just unfurled its Q1 FY26 results, painting a picture of robust growth and promising synergy realization.

As financial analysts, our eyes are not just on the headline numbers, but on the changes in key metrics and, most importantly, their potential impact on future earnings. So, let’s peel back the layers of Sequent’s latest performance.

Sales Momentum: A Return to Roaring Growth? 🚀

After a period of consolidation, Sequent Scientific (standalone) has delivered a significant acceleration in its top-line performance for Q1 FY26.

• Standalone Revenue (Sequent): INR 4,414 million, a healthy 13% jump year-on-year (YoY) and a solid 10% increase quarter-on-quarter (QoQ). This broad-based growth signals a revitalized operational rhythm.
• Combined Revenue (Sequent + Viyash): The merged entity saw an 8.7% YoY growth, reaching INR 7,944 million. While slightly lower than standalone, this combines two distinct business models, and the growth remains commendable.

Digging deeper, both core segments contributed meaningfully:

Geographically, Sequent is making strategic moves:

• Europe: Despite a high base, Europe showed 4% YoY and 20% QoQ growth, boosted by companion animal sales and exports. Critically, the Spanish manufacturing facility secured GMP approval, paving the way for new product launches.
• Emerging Markets: A standout with 25% YoY growth, powered by increased exports, tactical price increases, and a favorable product mix. Mexico is a growing front-end focus, and Turkey is increasingly becoming an export hub due to its EU GMP licensed injectable plant.
• India: Delivered 8% sales growth. While impacted by Q1 seasonality (dairy cattle business, rural economy), the company’s recent field force expansion (doubled to nearly 200 people) is a strong leading indicator. Management expects India to move into double-digit growth soon, signaling confidence in the domestic market.

The emphasis on companion animal health, currently 5% of the business, with an organic doubling target in three years, alongside exploring companion animal APIs, suggests a forward-looking strategy targeting high-growth niches. The sales performance paints Sequent as a Fast Grower, especially with the renewed API momentum and strategic expansion.

Margin Expansion: The Profitability Engine Kicks In ⚙️

What truly sets this quarter apart is the impressive margin expansion across both entities.

• Sequent Standalone Gross Margin: Improved by a healthy 180 basis points (bps) YoY to 46.9%. While a slight sequential dip due to product mix variations, the directional target of 50% over the next 3-4 quarters remains.
• Sequent Standalone Adjusted EBITDA: A robust INR 602 million, growing an impressive 24.7% YoY and 5.7% QoQ.
• Sequent Standalone Adjusted EBITDA Margin: Expanded by 126 bps YoY to 13.6%. Management is targeting mid-teens EBITDA margins for Sequent.
• Viyash Life Sciences EBITDA Margin: Already strong at 19.5%, improving by 2.4% YoY, aligning with their medium-term aspiration of 20-plus margins.
• Combined Adjusted EBITDA: Soared by 21% YoY to INR 129 crores, with the combined EBITDA margin improving by 1.7% to 16.2%.

This significant margin improvement is primarily driven by effective cost management, an improved product mix in both formulations and APIs, and the inherently higher margins of Viyash’s business. The fact that profitability is growing faster than revenue is a key positive, demonstrating operational efficiencies.

Most strikingly, Profit After Tax (PAT) for Sequent standalone witnessed a phenomenal surge of 93.7% YoY and 69.7% QoQ to INR 176 million. Management expects PAT growth to continue outpacing EBITDA growth, which is exactly what a market-watching analyst likes to hear from a fast-growing company. This indicates strong leverage on the P&L as the top-line grows and costs are managed.

The Viyash Merger: Synergies Taking Concrete Shape 🤝

The strategic merger with Viyash Life Sciences is not just progressing on paper; its foundational elements are visibly coming together, with early synergies already being realized.

• Regulatory Momentum: Crucial regulatory hurdles have been cleared, including approvals from the CCI and Stock Exchanges, with NCLT filings complete and a shareholders’ meeting slated for August 30, 2025. The merger is well on track for completion within the estimated 12-15 month timeline.
• Tangible Synergies:
  • R&D: Teams are already integrated, collaborating on product portfolio discussions, development, and cost improvement initiatives. This is a critical synergy, impacting future product pipeline and cost efficiency.
  • Procurement: Combined negotiations for common materials have commenced, suggesting immediate cost savings.
  • Network Optimization: Identification of free manufacturing capacity for new products is underway. While regulatory processes for this take 12-24 months, it promises to be a significant source of synergies for long-term growth.
  • Sales: Opportunities for Viyash to leverage Sequent’s API business with innovator companies are being explored.

Management’s candid comment that synergies are “better than anticipated” is a strong positive signal. This operational integration bodes well for the combined entity’s future profitability and market positioning.

Key Business Metrics & Future Growth Drivers 🚀

Beyond the financials, several operational aspects highlight Sequent’s growth trajectory:

• Regulatory Prowess: Viyash successfully navigated five regulatory inspections last quarter, including two US FDA audits and one Europe audit, all with positive outcomes (“EIR Issued” for US FDA). This regulatory strength is paramount, especially as the company eyes the high-value US market, where generics penetration in animal health is an emerging opportunity.
• Robust Product Pipeline: Viyash validated three products and filed nearly 12 products across various countries (Europe, US, Korea, Saudi). Five finished dose products were filed in the US. Combined, five API approvals (including one US product and three CEPs) and one finished dose product approval were received. With around 20+ products in the R&D pipeline, and an expectation of 10-15 product developments and filings this year, future growth drivers are clearly in sight.
• CDMO Opportunity: Viyash has initiated Contract Development and Manufacturing Organization (CDMO) activities, working with top innovator companies. Building a dedicated team and expanding R&D space for this suggests a strategic pivot into a high-growth, high-margin segment, aiming for a strong presence in the next 12-18 months. This could be a significant value enhancer down the line.

Financial Health Check: Debt Under Control ✅

The company’s financial discipline also stands out. The combined Net Debt to EBITDA is around 0.6x, a significant reduction from less than 1x in the previous corresponding quarter. This strong balance sheet provides ample room for funding future growth and strategic initiatives. The evaluation of debt restructuring post-merger to reduce interest costs further highlights prudent financial management.

Investment Insight: What Does This Mean for Investors? 🤔

Sequent Scientific’s Q1 FY26 performance, buoyed by the Viyash merger, positions it as a compelling Fast Grower in the Indian market.

• Strong Execution: Management is delivering on its targets – API business revival, broad-based formulation growth, and significant margin expansion are all testament to effective operational strategies. The aggressive expansion of the India field force and targeted double-digit growth is a forward-looking move.
• Future Earnings Visibility: The progress on merger synergies, robust R&D pipeline, successful regulatory outcomes, and the budding CDMO business provide multiple avenues for future revenue and earnings growth. The expectation of PAT growth outpacing EBITDA growth indicates strong operational leverage.
• Favourable Sectoral Tailwinds: While not explicitly tied to India’s broader market indices (Nifty/Sensex), the domestic-growth theme is preferred by FPIs (before recent outflows) and analysts. Animal health is a resilient sector, and Sequent’s focus on both domestic and emerging markets, coupled with strong regulatory compliance, insulates it somewhat from global uncertainties affecting export-linked sectors like IT.
• Valuation & Earnings Visibility: The strong earnings visibility, coupled with healthy cash flow generation and a strengthening balance sheet (low debt), makes Sequent an interesting stock-picking candidate in line with current investment insights favoring domestic growth themes.

The management’s enthusiasm, supported by concrete numbers and clear strategic moves, appears well-founded.

Conclusion: Gearing Up for a Strong FY26 💡

Sequent Scientific Limited has kicked off FY26 on a high note. The impressive double-digit revenue growth, significant margin expansion, and a phenomenal surge in PAT underscore a company that is not just growing, but growing profitably and efficiently. The Viyash merger, far from being a distraction, is already unlocking tangible synergies, setting the stage for a stronger combined entity.

With a robust product pipeline, a focus on high-growth segments like companion animal health and CDMO, and a disciplined approach to financial management, Sequent appears well-equipped to sustain its momentum. Investors should watch closely as the company leverages its combined strengths, targeting ambitious margin goals and capitalizing on a resilient animal health market.

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