Buy Torrent Pharmaceuticals; target of Rs 4,024: Sharekhan

Sharekhan's research report on Torrent Pharmaceuticals

Torrent Pharma’s acquisition of JB Chemicals opens the door to multiple growth opportunities, especially a foray into the therapeutic segment and the untapped CDMO space. JB has leading brands in the chronic space. Six of JB’s brands are in the top 300 of the Indian pharmaceutical market (IPM) and continue to perform well on account of proven efficacy and favourable patient outcomes. JB is also strong in nephro, IV, pediatrics, ophthalmology and other segments. The ophthalmology segment (currently under a distribution model) will move into a licensing phase in January 2027, thus boosting margins. CDMO constitutes 11% of the revenues as of FY25 and is among the top 5 global lozenge manufacturers. Torrent will look to further expand the CDMO business. The acquisition will also help the firm penetrate further into the tier-2 and tier-3 markets.

Outlook

Strong focus and outperformance in the domestic market, successful integration of acquired firms/ products have led to improved valuations in recent times. Going forward too, the companies further foray into new segments/ diversification with strong revenue outlook bodes for the firm. We factor in revenue growth of 13%, and EBITDA growth of 16% CAGR over FY25-27E, leading to EBITDA margin improvement of 250 bps. Owing to triggers for revenue growth in FY26E, FY27E and beyond, we value the stock at 45x on FY27 EPS of Rs 89.4 and arrive at a price target of Rs 4,024.