Investec Upgrades Torrent Pharma to ‘Buy’ Amid JB Chemicals Acquisition

Investec has elevated its rating for Torrent Pharmaceuticals Ltd. from ‘sell’ to ‘buy’ as the company prepares to acquire a majority stake in JB Chemicals & Pharmaceuticals Ltd.. This acquisition is subject to approval from the Competition Commission of India (CCI). The brokerage has adjusted its target price for Torrent Pharma to Rs 4,100, up from Rs 2,930.

On July 18, 2023, Torrent Pharmaceuticals submitted a request to the CCI for clearance to acquire a majority stake in JB Chemicals, a deal valued at Rs 19,500 crore. If finalized, this merger will position Torrent as India’s second most valuable pharmaceutical company.

Investec underscored that the acquisition of JB Chemicals will enhance Torrent’s standing in the chronic, probiotics, and gastrointestinal sectors in India while broadening its international footprint. Additionally, it will strengthen Torrent’s capabilities in niche lozenge contract development and manufacturing (CDMO).

The target price set by Investec suggests a valuation of 22 times the estimated EBITDA for September 2027 and equates to 42 times the projected earnings per share (EPS) for the same period. Notably, these calculations are based on current estimates for both Torrent and JB, without factoring in potential synergies from the acquisition. The brokerage added that these figures conservatively assume a successful buy-back of JB shares.

Investec believes this acquisition will be accretive to EPS by the fiscal year 2028. The analysts expressed optimism regarding the prospects of JB Chemicals following the takeover, citing Torrent’s proven track record in mergers and acquisitions. They emphasized that it would be prudent to await the completion of the merger before integrating JB’s financials into Torrent’s reports.

Furthermore, Investec indicated that Torrent Pharma is well-positioned to manage its debt obligations over the next two to three years. This assessment reflects confidence in the company’s financial stability, particularly in light of the anticipated growth stemming from the acquisition.

Overall, the upgrade from Investec reflects a positive outlook for Torrent Pharmaceuticals as it embarks on this significant acquisition, aiming to solidify its status in the competitive pharmaceutical landscape.