Torrent Pharmaceuticals Share Price Target at Rs 3,850: Prabhudas Lilladher
Prabhudas Lilladher has issued an “ACCUMULATE” recommendation on Torrent Pharmaceuticals (TRP), with a target price of Rs3,850 per share. The research underscores the strategic significance of TRP’s acquisition of JB Chemicals & Pharmaceuticals (JBCP), which is set to elevate TRP to the fifth largest player in India’s pharmaceutical market. The transaction, valued at Rs122 billion, is expected to enhance TRP’s presence in high-margin chronic therapies, diversify its portfolio, and deliver long-term earnings accretion, despite a near-term EPS dilution. Investors are advised to monitor the integration process, regulatory clearances, and debt management, as these will be pivotal in realizing the full value of the merger.
Strategic Rationale for the Acquisition
TRP’s acquisition of JBCP is a calculated move to consolidate its leadership in India’s branded generics market. This transaction will make TRP the fifth largest pharmaceutical company domestically, with a projected 4.6% market share. The combined entity is expected to derive 56% of its revenues from domestic formulations and 80% from high-margin branded generics and CDMO (Contract Development and Manufacturing Organization) businesses, significantly boosting profitability.
The acquisition provides TRP access to high-growth therapeutic areas, particularly chronic therapies, which constitute approximately 65% of JBCP’s revenues. The deal also marks TRP’s entry into new segments such as ophthalmology, IVF, and nephrology, while most of the existing portfolios remain complementary, minimizing overlap risk and maximizing synergy.
Transaction Structure and Financial Implications
The transaction involves a primary stake acquisition, employee share purchase, and a mandatory open offer, followed by a merger with a defined swap ratio. TRP will acquire a 46.4% controlling stake in JBCP from Tau Investment Holdings (a KKR entity) at Rs1,600 per share, totaling approximately Rs119 billion—an 11% discount to the previous closing price. An additional 2.8% stake will be acquired from employees at the same price, and a mandatory open offer for up to 26% at Rs1,639 per share is planned. The merger ratio is set at 100 JBCP shares for 51 TRP shares, implying a valuation of Rs1,703 per JBCP share (a 5.4% discount).
The acquisition will be financed through debt, with an estimated requirement of Rs125 billion, resulting in a pro forma net debt/EBITDA of 2.6x for the combined entity in FY27E. Management expects to reduce this ratio to below 0.5x within two to three years, aided by robust cash flows and cost rationalization. The cost of debt is projected to remain below 8%.
Valuation and Target Levels
TRP is currently trading at 40x P/E and 21.5x EV/EBITDA on FY27E, while JBCP is being acquired at a 25–28% valuation discount to these multiples. The research house values the combined entity at 25x EV/EBITDA on FY27E, supporting the target price of Rs3,850 per share. The “ACCUMULATE” rating reflects an upside potential of 13% from the current market price of Rs3,408.
Key stock levels for investors:
Current Market Price (CMP): Rs3,408
Target Price (TP): Rs3,850
Recommended Action: Accumulate
Support Level: Rs3,200 (recent consolidation zone)
Resistance Level: Rs3,600 (52-week high)
Financial Projections and Earnings Outlook
Despite a projected 15% EPS dilution in FY27E due to the debt-funded nature of the deal, the acquisition is expected to become EPS neutral by FY28E and accretive thereafter. The combined entity’s EBITDA margin is forecast to improve from 31.4% in FY24 to 34.0% in FY27E, driven by sourcing efficiencies, cost rationalization, and pricing actions on key brands.
Key financial metrics for the merged entity:
| Metric | FY24 | FY25 | FY26E | FY27E |
|---|---|---|---|---|
| Sales (Rs m) | 1,07,280 | 1,15,160 | 1,29,624 | 1,45,058 |
| EBITDA (Rs m) | 33,680 | 37,210 | 43,094 | 49,352 |
| EBITDA Margin (%) | 31.4 | 32.3 | 33.2 | 34.0 |
| PAT (Rs m) | 16,560 | 19,110 | 25,436 | 31,074 |
| EPS (Rs) | 46.4 | 57.2 | 75.3 | 91.9 |
Synergies, Integration, and Management Commentary
TRP’s track record of integrating previous acquisitions such as Unichem, Elder, and Curatio lends confidence to the successful execution of this merger. Management expects to replicate its proven integration model, focusing on operational efficiency and brand consolidation. The combined entity will benefit from enhanced medical representative productivity (Rs0.8 million/month) and access to new physician segments, including general practitioners and nephrologists.
Geographic expansion is on the cards, with TRP now positioned to strengthen its presence in Russia, South Africa, and the US, leveraging JBCP’s existing base. The CDMO vertical is highlighted as a scalable and high-margin business with established customer relationships and stable volumes.
Risks and Regulatory Considerations
The merger is contingent upon regulatory approvals from SEBI, stock exchanges, the Competition Commission of India (CCI), and the National Company Law Tribunal (NCLT). The process is expected to take 15–18 months, with the CCI approval anticipated within 4–5 months, followed by a one-month tender offer period. The integration is also subject to approval by a majority of minority shareholders of JBCP.
Minor overlap risks exist, primarily in the probiotics segment, but no significant divestments are expected. Management does not foresee any major regulatory or operational hurdles that could derail the integration timeline or synergy realization.
Investor Takeaways and Outlook
Prabhudas Lilladher’s “ACCUMULATE” call is underpinned by the strong strategic rationale, attractive valuation, and robust financial outlook for Torrent Pharmaceuticals post-acquisition. Investors should track the progress of regulatory approvals, debt reduction, and operational integration, as these will be critical to unlocking the full value of the merger. The stock offers a compelling risk-reward profile for medium- to long-term investors seeking exposure to India’s fast-growing pharmaceutical sector.
