Torrent Pharma shares jump 4% on acquisition deal; JB Chemicals slides 6%

Shares of Torrent Pharmaceuticals surged nearly 4% in opening trade on Monday following the announcement that it will acquire a controlling stake in JB Chemicals and Pharmaceuticals in a major deal worth ₹11,917 crore. JB Chemicals shares, however, declined by as much as 6% in early trade.

Cheering the news, Torrent Pharma shares rose by as much as 3.9% to ₹3,474.60 on the BSE, after opening higher at ₹3,419.95 against Friday’s closing price of ₹3,344.40. At the time of reporting, Torrent Pharma shares were trading 0.75% higher at ₹3,369, with a market capitalisation of ₹1.14 lakh crore.

On the other hand, JB Chemicals shares dropped by as much as 6.5% to
₹1,681.90 on the BSE, while its market cap slipped to ₹26,315.44 crore.

Meanwhile, the equity benchmarks, the BSE Sensex and the NSE Nifty, were down by 0.15% each, after a muted opening.

In an overnight development, Torrent Pharmaceuticals announced that it will acquire a controlling stake in JB Chemicals and Pharmaceuticals from global investment firm KKR. The home-grown pharma major looks to buy 46.39% stake in JB Chemicals for ₹11,917 crore, at an overall equity valuation at ₹25,689 crore on a fully diluted basis.

According to the company, the acquisition will be executed in two phases. First, Torrent will purchase 7.44 crore equity shares from Tau Investment Holdings Pte.—the promoter of JB Chemicals—at a price of ₹1,600 per share in cash. In parallel, it will launch a mandatory open offer to acquire up to 26% of the public shareholding at ₹1,639.18 per share, in compliance with Sebi’s takeover regulations. Torrent has also expressed interest in acquiring up to 2.8% from certain employees who may exercise their vested stock options, at the same price offered to KKR.

Acquisition to enhance Torrent’s domestic formulation offerings

With this acquisition, Torrent would have access to a fast-growing domestic formulations (DF) business with a healthy share of the chronic portfolio. In addition, it would garner the international contract development and manufacturing organisation (CDMO) business of JB Chemicals and Pharmaceuticals (JBCP), Motilal Oswal said in a note. It believes that the acquisition will be value accretive for Torrent over the medium to long term. 

The brokerage has maintained a ‘Neutral’ rating on the stock. “While the deal is positive, we reiterate our Neutral rating on the stock due to limited upside from the current levels,” it said.

“We believe acquiring JBCP to be value accretive for Torrent backed by 1) diversified branded portfolio comprising multiple potential mega brands, 2) pan-India presence through a strong MR field force of 2,800, 3) manufacturing capabilities/capacities for diversified dosage forms, and 4) lozenges-led CDMO business,” the brokerage house said.

On deal funding, the brokerage said it awaits clarity on the debt/equity composition to pay cash consideration of ₹12,600 to acquire a 46.4% stake in KKR and 2.8% of equity shares from certain JBCP employees.

The transaction is subject to shareholder and Competition Commission of India (CCI) approval. The overall process is expected to be completed within the six-month timeframe.

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