JB Chemicals acquisition value accretive for Torrent Pharma; 4 reasons why

MOFSL in a fresh note on Monday said the acquisition of JB Chemicals will be value accretive for Torrent Pharma due to four key reasons. It cited JB Chemicals’ diversified branded portfolio comprising multiple potential mega brands, its pan-India presence through a strong MR field force of 2,800, its manufacturing capacities for diversified dosage forms, and lozenges-led CDMO business, to suggest that the deal would be strategically positive
for Torrent Pharma.

Ex-JB Chemicals, it expects Torrent Pharma to deliver 12 per cent growth in revenue, 14 per cent growth in Ebitda and 23 per cent growth in PAT compounded annually over FY25-27. It values Torrent Pharma at 38 times 12-month forward earnings per share to arrive at a target price of Rs 3,430. 

“While the deal is positive, we reiterate our Neutral rating on the stock due to limited upside from the current levels,” it said.

MOFSL said it would await clarity on funding for the cash part of the payment.  KKR’s 46.4 per cent stake in JB Chemicals is expected to be paid cash consideration of Rs 11,900-odd crore. Torrent Pharma intends to pay certain employees holding a cumulative position of 2.8 per cent of JB Chemicals at a similar price to that of KKR.

“Torrent Pharma has a current net debt of Rs 2,250 crore with a net debt:Ebitda ratio of 0.6x. Torrent Pharma garnered Ebitda of Rs 3,760 crore in FY25 and is expected to deliver Rs 4,300 crore/Rs 4,900 crore in FY26/FY27. If the entire amount is funded using debt, then it may dilute the earnings in FY27 by 10.5 per cent,” it said.
If 50 per cent of the requirement is funded using equity raise, it would marginally dilute the earnings, MOFSL said.

With this acquisition, Torrent Pharma would have access to a fast-growing domestic formulation (DF) business with a healthy share of the chronic portfolio. In addition, TRP would garner the international CDMO business of JBCP. 

“The valuation of JBCP would be 30.7x FY26E earnings and 27x FY27E earnings, assuming an 18 per cent earnings CAGR over FY25-27. On an EV/Ebitda basis, it would be at 22x FY26E Ebitda and 19x FY27E Ebitda,” MOFSL said.