Torrent Pharma shares: Nuvama reiterates 'Buy' call, sees 15% upside potential

Torrent Pharmaceuticals (TRP) is set to acquire a controlling stake in JB Chemicals and Pharmaceuticals (JBCP) at an estimated equity valuation of Rs 25,700 crore. The two-phase deal, once concluded, could catapult TRP to the fifth position in the Indian Pharmaceutical Market (IPM) and make it the largest cardiac therapy company in the country.

According to Nuvama Institutional Equities, TRP will initially acquire a 46.39 per cent stake in JBCP from private equity giant KKR. Additionally, the company will buy a 2.8 per cent stake from JBCP employees at Rs 1,600 per share. Following this, a mandatory open offer will be launched to acquire another 26 per cent stake, with a proposed outlay of Rs 6,800 crore.

Once the acquisitions are completed, TRP plans to merge JB Chemicals into its own operations. The merger will be executed at a share swap ratio of 51 TRP shares for every 100 JBCP shares, resulting in an estimated 23 per cent increase in Torrent's outstanding shares.

Nuvama views the deal as strategically promising, citing JB's robust return on capital employed (RoCE) of 32 per cent, its chronic therapy portfolio, strong brand recall and the profitable Contract Development and Manufacturing Organization (CDMO) business as key positives. Brands such as Cilacar, Rantac, Merogyl, Nicardia and Sporlac will now come under TRP's umbrella, potentially boosting its domestic business contribution by about 50 basis points.

While the transaction is expected to strengthen TRP's India-focused growth strategy, the domestic brokerage notes that the deal could be margin and EPS dilutive until FY28, contrary to Torrent's expectations. However, Nuvama remains optimistic and retains a 'BUY' rating on Torrent Pharma with a target price of Rs 3,920, indicating a potential upside of 14.97 per cent from its previous closing of Rs 3,409.70.

The entire acquisition and merger process is projected to be completed within 15 to 18 months, subject to regulatory and minority shareholder approvals. The deal is expected to be funded primarily through leverage, with the company targeting a debt-to-EBITDA ratio of less than 0.5x within two years of completion.