The share price of KKR-backed JB Chemicals and Pharmaceuticals is expected to correct following its acquisition by Torrent Pharmaceuticals Ltd. The acquisition price is a 10.65% discount to Friday's market price and subsequent open offer price at a discount to the current market price. Torrent is paying 5.9x FY27 EV/Sales and 21.5x FY27 EV/Ebitda for this deal — a fairly competitive valuation.
Gujarat-based Torrent Pharma will add approximately Rs 4,300 crore in revenue and Rs 754 crore in profit for the financial year ending March 2026 through this acquisition. The company itself is projected to report revenue of Rs 13,080 crore and a profit after tax of Rs 2,619 crore in the ongoing financial year, according to analyst estimates. The acquisition will therefore contribute about 33% to Torrent Pharma's expected revenue and 29% to its profit (pre-debt) in the current financial year.
The Deal
Torrent will acquire a total stake of 49.19% in JB Chemicals for a consideration of Rs 12,275 crore. In addition, it has announced an open offer for 26% at Rs 1,639.18 per share, amounting to Rs 6,826 crore.
Torrent will subsequently merge JB Chemicals with itself, offering 51 shares of Torrent Pharma for every 100 shares of JB Chemicals. If the open offer is fully successful, Torrent will need to swap around 25% of JB Chemicals' equity; if not, it will swap up to 50.81% of the equity held by minority shareholders. In short, the possible equity dilution for Torrent Pharma will range from 5.3% to 10.9%, depending on the open offer's success.
Torrent is also seeking shareholder approval to raise Rs 5,000 crore via equity, convertible bonds, or debentures at the upcoming Annual General Meeting in August. The remaining amount will likely be funded through debt.
At current prices, it makes sense for JB Chemicals shareholders to consider staying invested in the combined entity, as the acquisition is expected to be earnings-per-share accretive, depending on the leverage Torrent uses. Torrent currently raises commercial papers at under 6% in the market. Despite the additional debt for this deal, the combined entity is likely to be EPS accretive by the next financial year.
For JB Chemicals investors seeking short-term gains, it may make sense to book profits now since the current market price is at a premium to the open offer price. However, long-term investors could benefit from holding on, as the combined entity is projected to generate over Rs 20,000 crore in revenue, Rs 6,000 crore in Ebitda, and more than Rs 4,500 crore in net profit—resulting in an improved margin profile and the potential for a higher price-to-earnings multiple.
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