ITC to acquire Aditya Birla-owned paper producer Pulp & Paper Undertaking for ₹3,498 crore

ITC Ltd on Monday announced the acquisition of Century Pulp and Paper from Aditya Birla Real Estate Ltd for ₹3,498 crore, expanding its own paper capacity by half, and gaining a foothold in the north.

While ITC’s paperboards and specialty papers business has an annual capacity of over 1 million tonnes, Century Paper has an installed capacity of 480,000 mt per annum. All of ITC's four paper facilities are located in South India, while the Century paper factory is at Lakuan in Uttarakhand.

“The acquisition will immediately add significant scale and economies to existing operations with potential for further capacity expansion, provide locational advantage for efficient customer servicing and proximity to key raw material sources, mitigate operational risks through multi-site operations and enhance resilience across industry cycles through portfolio diversification,” ITC said in an exchange filing.

Out of ITC's overall FY24 revenue of ₹69,446 crore, the paperboards, paper and packaging segment contributed ₹8,344 crore, while Aditya Birla Real Estate's pulp and paper division had revenue of ₹3,375 crore.

In a separate filing, Aditya Birla Real Estate said the sale of the pulp and paper business will help it further pursue growth opportunities in its core real estate business.

“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,” said B. Sumant, executive director, ITC.

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R.K. Dalmia, managing director, Aditya Birla Real Estate, said the sale is a strategic portfolio choice. “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,” he said in the filing. Century Paper makes and sells writing paper, printing paper, tissue paper, paper board, rayon grade pulp, paper grade pulp etc.

Subject to approvals

The transaction is subject to necessary regulatory approvals and is expected to close in six months.

India is the world's fifth-largest producer of paper and paperboards, with an estimated production of around 23 million MT per annum and an annual industry turnover of over ₹80,000 crore, per estimates by ITC. The country is one of the fastest-growing markets, with demand for paper and paperboards growing at 6%-7% per annum.

The acquisition is positive for ITC, and gives it ITC access to greater installed capacity as well as influence in markets beyond south India, an analyst said. The company is also flush with cash, helping it invest in acquisitions.

“We see this as a positive development for ITC—this will be EPS-accretive in year one i.e. FY27, following approvals. This is also a large-scale acquisition—adding almost 50% to the ITC's paper business in a full year. ITC has almost ₹30,000 crore on its books; from there, this is a ₹3,400 crore outlay for this acquisition,” said Abneesh Roy, executive director, Nuvama Institutional Equities.

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The acquisition also gives ITC greater access to markets in north India. Currently, ITC's paper factories are concentrated in South India. “ITC's paper business is currently seeing weak margins due to imports from China that have impacted Indian pulp prices. We expect that to ease out as steps are being taken by different players,” Roy added.

ITC said its paperboards and packaging segment expected to continue generating free cash flow. The acquisition is expected to be EPS accretive in the first full year of operations. The acquisition will also offer ITC new opportunities in the domestic and international markets.

Between FY20 and FY24, ITC’s paperboards, paper and packaging segment generated cumulative free cash flow of over ₹4,000 crore.

Paper is widely used in sectors such as fast moving consumer goods, fast food chains, pharmaceuticals, e-commerce, education and stationery.

ITC operates across various business segments including hotels, agriculture, fast-moving consumer goods and cigarettes. The company has been spending money to acquire assets across consumer-facing businesses. It recently demerged its hotel business, with ITC Hotels becoming a separate entity. Shareholders of ITC received one share of ITC Hotels for every 10 shares held, and ITC will retain a 40% stake in the demerged hotel company.

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