Novartis India Surges 20% on Stake Sale; Parent Company Shares Show Strong Momentum

Novartis India shares surged by 20 per cent to hit their Upper Circuit following a major divestment announcement. Swiss parent company Novartis AG has entered into a Share Purchase Agreement to sell its entire 70.68 per cent controlling stake to a consortium led by private equity firm ChrysCapital. This news propelled the stock to early morning highs of Rs 959.65, a sharp recovery from its previous close of Rs 830.45, bringing the company's total market capitalisation to approximately Rs 2,460 crore. The shares of the company saw a Spurt in Volume by more than 45 times on the BSE.

The transaction involves the sale of over 1.74 crore shares to three specific entities: WaveRise Investments, ChrysCapital Fund X, and Two Infinity Partners. WaveRise is set to become the largest shareholder with a 56.45 per cent stake acquired at Rs 860.64 per share, while the other two partners will pick up smaller portions at Rs 701.25 per share. The total deal value is estimated at Rs 1,445.89 crore, marking a definitive exit for the Swiss multinational from its Indian arm's shareholding structure.

In accordance with SEBI regulations, this change in control has triggered a mandatory open offer for the company's public shareholders. The ChrysCapital-led consortium, supported by Axis Capital as the offer manager, proposes to acquire an additional 26 per cent of the voting share capital at a price of Rs 860.64 per share. This cash offer, valued at up to Rs 552.50 crore, provides a liquidity window for minority investors as the company prepares for a complete overhaul of its promoter group and corporate identity.

Once the deal concludes, Novartis AG will be reclassified as a public shareholder, and the company must undergo a total rebranding process. Per the agreement, all references to the "Novartis" name and brand must be removed within 120 days of the closing. Despite this total change in leadership, the new owners have confirmed they have no immediate plans to delist the company, committing instead to maintaining the mandatory 25 per cent minimum public shareholding required for listed firms in India.

Meanwhile, the parent company Novartis (SWX:NOVN) has drawn fresh attention after recent performance data showed a 9.9% return over the past month and 23% over the past 3 months. The stock last closed at CHF126.48, with returns of 2.2% over 7 days, 10.7% over 30 days, 16.6% year to date, 35.5% over 1 year, 85.7% over 3 years and 104.7% over 5 years.

With Novartis closing at CHF126.46 and the most followed narrative pointing to a fair value of CHF113.58, the tension here sits squarely between stronger fundamentals and a richer share price. Operational efficiency gains from portfolio streamlining (for example, previous spin offs and exiting non core lines) and productivity improvements are driving core margin expansion and higher free cash flow, which can be reinvested in R&D and shareholder returns, supporting long term earnings and net margin growth.

Announced $10 billion share buyback program, in addition to a strong dividend and significant free cash flow, enhances potential EPS growth and return on equity, which could result in rerating of the stock as medium term demand and profitability tailwinds materialize.

While the CHF113.58 fair value from the AI narrative suggests Novartis is 11.3% overvalued, the share price of CHF126.46 sits against a P/E of 22.3x, compared with 24.2x for the wider European pharma group and a fair ratio of 39.1x. That gap, both versus peers and the higher fair ratio, points to a market that is pricing Novartis more conservatively than many large pharma names, even after the recent share price run.

Using a 2 Stage Free Cash Flow to Equity model, projected cash flows are discounted back to today, which results in an estimated intrinsic value of US$256.30 per share. Against the recent share price of US$126.48, this DCF output suggests the stock trades at a 50.7% discount to that intrinsic estimate. On this model, the shares screen as undervalued.

Novartis currently trades on a P/E of 22.29x, close to the Pharmaceuticals industry average of 22.03x, and below a peer group average of 88.02x. The Fair Ratio for Novartis is 39.14x, which is a proprietary estimate of what the P/E could be given factors such as earnings growth, profit margins, industry, market cap and company specific risks. Since the Fair Ratio of 39.14x is higher than the current 22.29x, this framework indicates the shares screen as undervalued on a P/E basis.

However, patent expiries on key drugs, along with pressure on pricing and reimbursement, particularly in major markets, could materially change how that CHF113.58 fair value holds up. The latest twelve month free cash flow is about US$16.1b, with free cash flow projected at US$21.2b in 2030.