Replacing higher management with their own management is not exceptional in merger and takeover. The new managements wants their people at the key positions.
However, CEO resignation earlier and now CFO resignation in quick succession does not auger well in the short term.
Whenever the top guy leaves, especially a long tenure CEO, expect others in the senior leadership team to leave. This may not be the last, we could expect more. This is quite common in companies which are not promoter driven and very common in the US/Europe
Whether it is good or bad for the company, is a different point and remains to be seen
With these numbers, Sequentâs valuation deserves to be even lower IMO.
I was left flabbergasted by how much my understanding was wrong about this business.
Management clearly indicated that it is out & out generic business (LFL commodity) , the ability to pass price rates even partially is a struggle.
Was all that Branded generic stuff just an illusion. But how can they have 40% gross margins entirely due to commodities. But operating and net profit margins of 8% do confirm the same.
Disc: Invested since 210 levels. Not regretting but I did commit a mistake buying it at the mcap/sales I had entered here.
Update: after Q4FY22 concall, I truly am regretting and will definitely be learning from this. Hopefully, I will be able to avoid failures like this in future. Doesnât deserve > 1.2 ~ 1.4 market cap times sales.
Itâs a small portfolio quantity so not something I will lose sleep over but capital preservation is my first and most basic principle, hence the regret.
Currently have no choice but to basically sit back and trust the new mgmt to bring us back to top of circle numbers, steadily it maybe and slowly build conviction on the business based on them walking the talk. Re-acheiving Fy21 numbers is not a possibility at least in medium term.
Above are personal views. Your own due diligence is appreciated.
stock has bottomed out market has all ready discounted it, what ever worst can happen it happened with this stock, only Latam & India part played will, Turkey is in worst shape, Germany approval is pending , API is not working currently even human API is worst performing not for other coâs, But one thing is good that they have established S&D network through inorganic route which will eventually work out in future, Estd a brand Alivera , if
CDMO traction happened to India only player to avail bcoz of USFDA approved , I believe Carlyle can buy on these valuation as well, consolidation will be for another year for sure,
Key question for me regarding Sequent:
How commoditized is Sequentâs product portfolio?
Gross margins have contracted 500bps YoY. Thatâs a lot of contraction compared to other API players such as Laurus (Flat), Neulands (110 bps contraction), Diviâs (100 bps expansion). I understand the other companies have some CDMO components but the broad directional point stands.
New CEOâs comments in yesterdayâs concall were revealing - his effective understanding is that although Sequent calls itself âbranded genericâ, distribution led animal pharma is mostly commoditized with low pricing power. He said Sequent will focus on transitioning to more specialty molecules and formats (injectables) where pricing power is higher. Not sure how much weight should be put on a newly appointed CEOâs words, but his comments are definitely a warning sign for me in terms of evaluating Sequentâs overall pricing power in the market.
If Sequent does not really command pricing power, then valued at its FY21 full year EPS of 3.84 also it may not really be cheap at current prices (28x PE).
Anybody bullish on Sequent in the near term should listen to yesterdayâs concall. The sense I got from the new CEO was that a reset button is being pressed in terms of Sequent 2.0 strategies and speed of execution. The earlier strategy is being re-evaluated (Not in terms of planned capex but maybe in terms of molecules) and further committal steps will be taken cautiously.
Look forward to comments from folks bullish on Sequent at these levels from a 1-3 year POV.
Branded generic in human pharma actually means something. Not so sure about animal pharma.A small and rather simplistic view- those looking to self medicate for a fever will ask for a crocin or dolo at their local Pharmacy. Most people wonât buy paracetamol from an unknown drug maker even if itâs way cheaper but if you are rearing cattle and your so called branded generic is up 20% you are unlikely to care about your cattleâs preference. You want the cheaper version 
I have seen those videos and watching the Twitter community but not from the army 
, one thing is clear people hardly check the anti thesis points . comparing animal Pharma to fmcg products and comparing sequent to biggest competitor was the biggest mistake . I have seen same narrative by fund managers and couple of brokerages not sure whether everybody falls by the story or just fail to identify it .in last conference call new ceo clearly told there is nothing branded and all they do is in generic .Depreciation of Turkish lira was part of the anti thesis but nobody cared it much untill it shows up in results. When those videos surfaced p/e of a âcommodity APIâ company was above 50 and still people blindly buy ( me too). There is nothing wrong in selling out and move on when ur thesis is not working .
Any stock spedific reason for todays fall?, couldnât find anything in filings. 75% down from June 2021 top.
Not a technicals guy but weak days like these(especially with what looks like tons of margin calls in smallcap space) there is tons of overhead supply(people who hold the stock from higher selling out, which is a lot of people in sequents case).
Stock is in a classical downtrend, for those of us who would like to buy the narrative of RM cooling off and picking up animal apis at a cyclical lows, I would wait for a base formation.
In my pov its the effect of many factors into play, which can be stated as follows,
The above points are purely my pov. I might be highly optimistic or naive to have these understandings but for now this is how the overall picture seems to me. The watch is going to be long. I would be adding when the fundamentals look better or technical base seems to be made.
Disc. - Invested
If you heard the concall, the management clearly said they donât have pricing power despite them being branded players, and their distributors/ consumers are price sensitive. In my opinion, this is a clear fundamental divergence to what the earlier narrative was. Add to this, your points, no wonder itâs facing drawdowns.
The story might change in a year but itâs not investable today due to the thesis being broken.
Costs, RM pressure, API De-growth. No signs of recovery in the business. Miserable results to say the least+A truly humbling moment for me in how wrong investments can go if exits arenât made at the right time.
Disc:- Not invested, sold in FEB earlier this year.
A good case study in
Bent, Broken & Beyond Belief Posting here- I can come after few years to realise my own mistakes in judging the business direction, and be humbleâŚ
Ishmohit, Having followed this story for over a year (albeit not significantly invested at any point of time), this seems to me like a lesson in understanding true moats of a company on the basis of oneâs own research rather than blindly believing in moats presented by Management or experts. Sometimes experts can go wrong and Management can paint an overly rosy picture.
The âthesis bent and brokenâ moment came for me in the last concall when the new MD said Sequest doesnât command any significant brand power in the market. That came as a shocker.
Although I firmly believe every business can be bought at the right price and I think Sequent will also reach that price. Continue to track the story in order to figure out if they are capable of winning CDMO contracts in the future or how they execute wrt the Bremer capacity.
Circle of competence lessons learnt with this one and another IT stock recently.
Very very disappointing result, even worst part management donât have any vision or plan to revive & simply skip question, with these kind of top line stock will reach 100+ PE which is really detrimental for it, another 50% down side is evident, no vision on CDMO, simply deals in commodity API, M&A in Brazil/ Spain/ Germany where production cost & employee cost will rise with inflation, So worst part is not over yet, this is for sure
Hi,
The stock is Tanla. You can read my thoughts on the Tanla thread on VP - Tanla Platforms ~ Leading player in the fast-growing CPaaS market - #198 by nirvana_laha
The general learning for me for both Sequent and Tanla has been to go deep into the business model and strive to understand how the business works. What I learnt was, when stocks have strong tailwinds and the stories around them are bullish (Tanla - Wisely launch & huge CPaaS runway; Sequent - Only Indian USFDA approved animal pharma company, plays in regulated markets, brand is a moat), its easy to keep holding the stocks based on these sentiments and expertsâ views, without getting oneâs hands dirty by looking under the hood of the business.
The conclusions for me are as follows :
If you donât understand the business inside out i.e. you are sort of straying outside your circle of competence, then manage risk with position sizing. I let my position in Tanla become too big and failed to book significant profits when valuations were high. What had become 2x for me, came down to 0.7x.
In general, one should try to understand the businesses one owns in-depth, not just at a surface level. For e.g. the story around Wisely made me forget/ignore that Tanla still derives about 90%+ revenues from Enterprise SMS business and I did not due any due diligence on competitive dynamics developing there. I am not saying that I would have necessarily been successful in flagging the risk and reducing my position, but I would have been more wary and less complacent). The same story and pattern has played out for several investors in Sequent I believe.
Learn to be extra careful when a stock keeps falling and enters the 200DMA zone and below. Price action is to be respected because often bearish price action means insiders or institutional investors are acting on information that you may not yet have. So when prices fall consistently, one needs to go back and re-check their thesis thoroughly. If one isnât sure about whatâs wrong, booking some profits and reducing the position proportionately maybe the right thing to do. Of course there are some investors who have high conviction and the power to stay invested in a stock for 10 years, for them such things may not matter. I am not a 10Y horizon investor, my horizon is 3 years for most stocks and 5 years for high conviction ones. So technicals and price action matter for me.
PS: Admins may delete this post if its not relevant to Sequent. Tried sharing my learnings here, part of which came from Sequent.
Another eye-watering set of numbers from Sequent. Gross margins havenât improved QoQ and revenues are flat. EBITDA margin down to 0.8%, almost same as last Q.
Europe struggling
Acquired an Indian company called Tineta Pharma which is into livestock and aquaculture formulations. Claim to have a 25 year old presence, strong brand and field force of 270+ in India.
