Amnish Aggarwal on Torrent Pharma plan to acquire JB Chemicals, Jio Finance surge & IT and shipping stocks

Time of India

a day ago

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Torrent Pharma shares surge 4% after agreeing to acquire JB Chemicals for Rs 11,900 crore
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, Head-Research,, says Torrent Pharma 's plans to acquire JB Chemicals will be an expensive deal. The acquisition will strengthen Torrent's branded generics in India and overseas. It will also help in CDMO space. The deal is expected to increase margins in the long term. Synergies will likely emerge by the second half of FY27.The acquisition is at around six-and-a-half times EV to sales and it is definitely not cheap, that is one. Secondly, if you look at the portfolio of Torrent and the portfolio of JB Chemicals, whether it is medicines like Rantac, Nicardia or some of the other plays which JB Chemicals offers, in the domestic markets, it is definitely a complimentary deal and it offers them more branded generics in India and overseas and strengthens them in the CDMO space.They need to pay out Rs 12,000 crore and do not have that kind of money in the balance sheet. Plus, it is slightly complicated because they are acquiring some stake and making an open offer and then the merger is there. In the longer term, there is a scope to increase margins. In the longer term, it will play out to the benefit of Torrent Pharma. But yes, in the near term, I do not think there is anything which is very meaningful on the table in terms of any immediate traction to the stock price.In the longer term, definitely, Torrent Pharma will gain from it, may not be in FIY26, because the debt will come on the balance sheet, but as you said, by FY27 second half, by when they want to get rid of the debt, the synergies will also start coming in and might push their margins up by 2% to 3%. So, in the longer term, it will add value to Torrent Pharma.It is very difficult to say because it is a very volatile stock. Earlier from close to Rs 200-220, it went all the way to Rs 340-350. In terms of business, there are not many material things happening. They are gradually building up and might be looking at mutual funds. Then they are looking at lending. But on a very fundamental basis, I would not be able to give any reasons why the stock price has shown an upward movement.In IT services, the commentaries are not likely to be very different from what we have seen in the past couple of quarters. There might be solitary cases here or there where they might give some indication of recovery. But what we are learning as of now is that there is no big change in commentary. In the near to medium term, at least for the next couple of quarters, we will not see any meaningful uptake happening.Obviously, it will depend upon various segments. Some of the companies in BFSI or AI-related, might see some sort of stability, but for ER&D and companies which are catering to auto related stuff in Europe, we will continue to see pressure building up. There is no big change there. Some of the niches will continue to do well, but in terms of commentary, we are not expecting anything drastic as far as IT services are concerned.The acquisition is a positive because for Indian companies which are on the shipping side, whether commercial or defence, first of all, there is a huge runway of growth as we are not building enough ships – be it commercial ships or those for defence purposes.It is also positive for a company like say Mazagon Dock which is into submarines and all sorts of ships. As far as the Sri Lankan acquisition is concerned, it will be primarily for the commercial wing because it would not be possible to extend the defence wing over there.Second, all these shipping companies could be looking at expanding their production, particularly the commercial ship building side because India hardly makes anything and that too above the 10,000 DWT weight. I am not sure as of now if that particular shipyard has the capacity to build larger ships of more than 10,000 DWT or 20,000 DWT but if that happens, it will give Mazagon Dock a lot of fuel to accelerate growth because India wants to develop its ship building industry in a big way.However, it remains quite an expensive stock. It has run up quite sharply after the brief reaction which happened towards the Q3 of last year and from here on, in all these names, one will have to take a very long-term viewpoint of three to five years at least to make any very sizable returns.