With the acquisition of Century Pulp & Paper (CPP) from Aditya Birla Real Estate for `3,498 crore, ITC Ltd is seeking to expand capacity, secure supply chains, control costs, and improve market positioning as demand for paper increases.
CPP’s closer proximity to raw materials would also help ITC capitalise on India’s growing paper market while enhancing efficiency and sustainability. R. K. Dalmia, Managing Director, Aditya Birla Real Estate Ltd (ABREL), says: “The divestment is a strategic portfolio choice and unlocks value for the shareholders of ABREL. The company has embarked on a transformational growth phase, and this move will further sharpen its focus on real estate to drive sustained value creation.”
Paper and paperboard imports rose 3.5% during the April- September period of 2024-25. In such a situation, the acquisition could be a strategic move to mitigate external risks related to paper imports and increase overall profitability and market competitiveness.
“We are looking for a new site and see sustainable packaging as a significant opportunity,” Sanjiv Puri, ITC’s Chairman & Managing Director, told Business Today earlier. The deal will give ITC’s paper business additional capacity and access to a larger market. ITC had forayed into the paperboard industry in 1979 by establishing ITC Bhadrachalam.
In 2002, that business amalgamated with ITC and became a division. Today, its presence cuts across a set of distinct businesses – fast moving consumer goods (that includes cigarettes, foods, personal care, education and stationery), hotels, paperboards and specialty papers, agriculture and infotech. In FY24, it had a consolidated gross revenue of `69,446 crore and a net profit of `20,422 crore.
“The acquisition aligns with the company’s strategy of driving the next horizon of growth in the paperboards and specialty papers business by expanding capacity at a new location considering that the existing facilities are already saturated. The strong linkages to afforestation and livelihood creation pursued by both the entities contribute meaningfully to national priorities,” says B Sumant, Executive Director, ITC.
From a market standpoint, the per capita consumption of paper in India is 14 kg compared to a global average of 55-60 kg. The acquisition of CPP brings to ITC’s fold a presence in north India with in-house expertise in pulp manufacturing.
An investor presentation by ITC outlines how the transaction “enables efficient customer servicing across key markets, while ensuring proximity to raw material sources.” Besides, it strengthens ITC’s supply chain and backward integration and gives it multi-site operations that help in derisking and improving resilience across industry cycles.
The deal is interesting as it comes at a time when Chinese imports are impacting the paper industry in India. Abhijeet Kundu, Senior Vice-President of Research at Antique Stock Broking, thinks ITC is a quality asset at a decent price. “It had to increase capacity, and this is the fastest way of doing it. It makes sense to buy assets in a downturn,” he says.
ITC’s paperboards and specialty papers division has four product categories: paperboards, specialty and graphic boards, papers, and plastic substitution products.
The company has set itself stiff targets. The investor presentation outlines a target of 30-40% increase in EBITDA per tonne after two years of operations through efficiency gains and capacity debottlenecking. CPP’s plant is located in Lalkuan, Uttarakhand. In the medium term, ITC is looking to achieve a “high-teens return on capital employed.”
Kundu says ITC’s paper business operates on “decent margins” due to a greater focus on value-added paperboards. “There is a clear synergy that exists within ITC’s larger portfolio and that can easily get stronger over time.” While there is some concern on the downturn that exists today, he points towards pulp prices increasing in India, with the scenario correcting at some point.
@krishnagopalan
