Brokerages positive on medium-term prospects of Torrent-JB Chemicals merger

Brokerages are positive on the prospects of Torrent Pharmaceuticals after it announced a ₹25,689 crore deal to buy out JB Chemicals and Pharmaceuticals, even though the acquisition comes with a premium and is expected to dilute near-term earnings.

 

Given the synergies, Torrent’s execution track record, and minimal overlap in therapeutic categories, brokerages expect the deal to be value-accretive over the medium term. After the merger, Torrent will break into the top five pharmaceutical companies in the country, with a revenue base of ₹15,400 crore. The merger is expected to be completed over the next 15–18 months.

 

Torrent is paying 6.6x JB Chemicals’ 2024–25 (FY25) revenues and 40x its net profit to acquire the 22nd-ranked company. Torrent’s FY25 revenue is about 3x that of JB Chemicals, and its net profit is double. Despite the size, Torrent trades at 41x its 2026–27 (FY27) earnings. Analysts at Elara Securities, led by Bino Pathiparampil, say: “While the acquisition premium is steep, long-term value creation hinges on efficient integration, synergy realisation, and sustained growth across domestic and global businesses.” The brokerage has a ‘reduce’ rating on the stock.

 

 

Torrent plans to merge JB Chemicals with itself, expanding its product portfolio, enlarging its field force, and rationalising manufacturing capacities. While there is overlap in therapies such as cardiac, gastrointestinal, and gynaecology, most of their domestic brands are complementary, notes Kotak Research. This is expected to maximise synergies and drive operating leverage for the merged entity.

 

Motilal Oswal Research believes the acquisition will be value-accretive for Torrent, given JB Chemicals’ diversified branded portfolio, which includes several potential mega-brands and a pan-Indian presence through a strong medical representative field force of 2,800. Additional manufacturing capabilities for diverse dosage forms, and a lozenge-led contract development and manufacturing organisation business, would further add to Torrent’s asset base.

 

The company has indicated it will fund the deal largely through debt and internal accruals, and that the merger will be earnings-accretive from 2027–28. Torrent Pharma has a net debt of ₹2,250 crore, with a net debt-to-operating profit ratio of 0.6x. If the entire amount is funded using debt, earnings may be diluted in FY27 by 10.5 per cent, says analyst Tushar Manudhane of Motilal Oswal Research, who has a ‘neutral’ rating on the stock. “While the deal is positive, we reiterate our ‘neutral’ rating due to limited upside from current levels,” he adds.

 

What works in Torrent’s favour is its track record of acquiring and successfully integrating pharmaceutical companies — Elder Pharmaceuticals, Unichem Laboratories, and Curatio Healthcare — over the past decade. Analysts at Nomura Research, led by Saion Mukherjee, say investors are likely to take comfort in Torrent’s history of value-accretive acquisitions. “The company’s acquisition template in India is well established,” they add.

 

The brokerage, however, notes that JB Chemicals, being a relatively well-run business, offers limited scope for operational improvement. Despite diversification through acquisitions over the past five years, JB Chemicals’ domestic business remains concentrated in a few large brands where it already has significant market share. In the near term (pro forma FY27F), Torrent’s earnings are likely to take a hit due to rising interest costs and amortisation. Nomura has a ‘neutral’ rating on the stock.