JB Chemicals' Acquisition Strategically Positive For Torrent Pharma, Says Motilal Oswal — Maintains 'Neutral'

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Motilal Oswal Report

Torrent Pharmaceuticals Ltd. is set to acquire a controlling stake in JB Chemicals and Pharmaceuticals Ltd.

The deal is at an equity valuation of Rs 256 billion (on a fully diluted basis).

With this acquisition, Torrent Pharma would have access to a fast-growing domestic formulation business with a healthy share of the chronic portfolio. In addition, Torrent Pharma would garner the international contract development manufacturing organisation business of JB Chemicals.

The valuation of JB Chemicals would be 30.7x FY26E earnings and 27x FY27E earnings, assuming an 18% earnings CAGR over FY25-27. On an EV/Ebitda basis, it would be at 22x FY26E Ebitda and 19x FY27E Ebitda.

Considering the strong brand franchise of JB Chemicals with an established 2,800+ field force and lower valuation of JB Chemicals compared to that of Torrent Pharma (47x FY26 earnings/38x FY27 earnings), we believe the acquisition to be value accretive for Torrent Pharma over the medium to long term.

We await clarity on the debt/equity composition to pay cash consideration of Rs 126 billion to acquire a 46.4% stake in KKR and 2.8% of equity shares from certain JB Chemicals employees.

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