Torrent Pharma shares surge after JB Chemical acquisition; What brokerages are saying

New Delhi: The shares of Torrent Pharma is in focus after it announced the acquisition of JB Chemicals for a deal worth around over Rs 25000 crore. Torrent Pharma stock surged as high as 1 percent to Rs 3367 on Monday, 30th June, at the time of writing this article.

Torrent Pharma is set to acquire the controlling stake in JB Chemicals and Pharmaceuticals in a Rs 19,500 crore deal, said the company statement. The deal will be the second biggest deal in the Indian pharma sector, making Torrent Pharma the second most valuable company in the segment.

Brokerage firm "Nomura" has maintained a neutral rating on Torrent Pharma, setting its target price at around Rs 3580 apiece. The brokerage said the company has a successful track record with past acquisitions, and investors are likely to rely on the performance of the company. The deal is likely to yield short-term cost synergies while staging the set for long-term revenue gains.

On the other hand, HSBC has initiated a BUY rating as it believes the deal would strengthen Torrent's position in segments such as chronic therapies and its positioning in the contract development and manufacturing (CDMO) segment.

Torrent will be acquiring a 46.39 percent stake from promoters Tau Investment Holding Pvt Ltd. (a unit of a global investment firm) for about Rs 11917 crore. Thereafter, the company will buy an additional 2.80 percent stake from employees of JB Chemicals at the price of Rs 1600 per share, which would total around Rs 719 crore.

After this, it would make an open offer to buy 26 percent from the open market at a price of Rs 1639.18 per equity share, totaling Rs 6842.8 crore as per listing norms.

"Torrent Pharmaceuticals Limited and global investment firm KKR today announced that Torrent has entered into definitive agreements to acquire a controlling stake in J B Chemicals and Pharmaceuticals from KKR at an equity valuation of Rs 25,689 crores (on a fully diluted basis), followed by a merger of the two entities," a company statement said.

The deal is set to be the second biggest deal in pharmaceuticals after the Sun Pharma Industries acquisition of Ranbaxy Laboratories back in 2015.

Post the deal, JB Pharma would be merging into Torrent. For every 100 shares of JB Pharma, shareholders shall be receiving 51 shares of the merged entity (Torrent).

The deal is set to give Torrent the access to the chronic market segment and shall open an unexplored therapeutic area of ophthalmology.

Besides creating operational synergies, the deal is expected to strengthen Torrent's market share in the Indian pharmaceutical market and diversify its platform into contract development and manufacturing.

The acquisition will strengthen Torrent's market share in the IPM as well as give entry into the CDMO segment with long-term potential. It would also have consolidation in key international markets and give greater ability to scale up.

Torrent Pharma is the flagship company of the Torrent Group. Torrent Group is an Indian multinational conglomerate. The pharma segment is one important segment, with others being gas and power. The annual revenue of Torrent Pharma is more than Rs 11,500 crore, with the parent group revenue exceeding Rs 45,000 crore.