JB Chemicals share price tanks 7% after Torrent Pharma's acquisition news; here's why

Shares of JB Chemicals & Pharmaceuticals Ltd fell 7 per cent on Monday after Torrent Pharmaceuticals Ltd announced a two-phase acquisition, wherein it suggested an open offer price of Rs 1,639.18 apiece for JB Chemicals shareholders, which was at 8.90 per cent discount to Friday's closing price of Rs 1,799.35 apiece on BSE.  

Following the development, the stock fell 6.52 per cent to hit a low of Rs 1,681.90. The Torrent Pharmaceuticals stock, on the other hand, was trading 0.59 per cent higher at Rs 3,364.05.

Established in 1976, JB Chemicals' domestic formulation segment contributed 58 per cent of the company’s total revenue in FY25. In India, the company is ranked the 22nd largest company, and it has improved its market ranking over the years supported by acquisitions.

After acquiring 46.39 per cent stake in JB Chemicals and Pharmaceuticals from global investment firm KKR, and up to 2.8 per cent stake from certain employees, Torrent Pharma would come up with a mandatory open offer to acquire up to 4,17,45,264 shares, representing 26 per cent stake for a total consideration of Rs 6,842.80 crore, assuming full acceptance. 

The open offer would be made at a price of Rs 1,639.18 apiece, determined in accordance with Regulations 8(1) and 8(2) of the SEBI (SAST) Regulations, Torrent Pharma said. 

In the case of Torrent Pharma, Nomura India noted that the company is dependent on acquisitions to expand portfolio. The company in the past has made large acquisitions. The prominent ones being Elder Pharma in 2013, Unichem in 2017 and Curatio in 2022. 

"Indeed, many of the top brands in TRP’s current portfolio including Shelcal and Chymoral were added through acquisitions. The company has made limited investments in markets outside of India and appears most comfortable in deploying capital in India. The past acquisitions are a success as TRP successfully integrated the acquired portfolio with its current India platform, realising very quick cost synergies," Nomura said. 

This typically leads to significant expansion in the Ebitda margin of its acquired portfolio in 1-2 years. Further, over time, the company has managed to gain revenue synergies, it noted. The brokerage remained neutral on Torrent Pharma and suggested a target price of Rs 3,580. 

MOFSL on Monday said acquiring JB Chemicals would be value accretive for Torrent Pharma backed by diversified branded portfolio comprising multiple potential mega brands, pan-India presence through a strong MR field force of 2,800, manufacturing capabilities/capacities for diversified dosage forms, and lozenges-led CDMO business.

"Ex-JBCP, we expect TRP to deliver 12 per cent/14 per cent/23 per cent revenue/Ebitda/PAT CAGR over FY25-27. We value Torrent at 38x 12M forward earnings to arrive at a price target of INR3,430. While the deal is positive, we reiterate our Neutral rating on the stock due to limited upside from the current levels," MOFSL said.