Investec has upgraded Torrent Pharmaceuticals Ltd. to 'buy' from 'sell' with the company awaiting a nod from the Competition Commission of India to acquire a majority stake in JB Chemicals & Pharmaceuticals Ltd. The target price has been raised to Rs 4,100 from Rs 2,930.
On July 18, Ahmedabad-based Torrent Pharmaceuticals had sought fair trade regulator CCI's clearance to acquire a majority stake in in JB Chemicals and Pharmaceuticals in a Rs 19,500-crore deal.
Once the deal is finalised, Torrent Pharmaceuticals will become India's second most valued pharma company.
The brokerage highlighted that Torrent Pharma's acquisition of JB Chemicals & Pharmaceuticals will strengthen Torrent's position in chronic, probiotics & GI in India while expanding its international presence and niche lozenges CDMO capabilities.
Investec's target price implies 22 times Sep '27E Proforma Ebitda and also equates to 42 times Sep '27E Torrent Pharma EPS. "These calculations are based on our current estimates for Torrent and JB without assuming any synergies. Also, these conservatively assume a 100% success with the buy-back of JB shares," it added.
The brokerage highlighted this acquisition would be EPS accretive by FY28. "We remain bullish on JB Chemicals & Pharmaceuticals prospects after Torrent taking over, given the latter's M&A track record," it added.
The brokerage said it was time to wait for the Torrent Pharma-JB Pharma merger to close before incorporating JB's numbers into Torrent Pharma.
According to Investec, Torrent Pharma is in a comfortable position to service the debt over the next 2-3 years (FY27,debt/Ebitda <2 times) even in the scenario of a 100% subscription to the open offer.
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