The acquisition of Andhra Pradesh Paper Mills by the multinational International Papers offers international recognition for the worth of the domestic paper industry and the market, say industry representatives.
On Tuesday, the US-based International Papers announced the acquisition of a 53 per cent stake in APPM for Rs 1,436 crore.
It will acquire up to an additional 21 per cent through an open offer for about Rs 470 crore.
Effectively, International Papers will pay about Rs 1,900 crore for a 75 per cent stake in the company, with a production capacity of about 2.5 lakh tonne a year.
Valuation creates a buzz
The valuation of the deal has attracted the most attention while the entry of the multinational itself is not likely to have a major impact.
Indian manufacturers have achieved international standards in operations and are well entrenched, say domestic manufacturers.
Mr Harsh Pati Singhania, Managing Director, JK Paper, describing the move as positive, said the deal enhances the overall valuation of Indian paper companies.
The enterprise value of APPM is pegged at about 17 times EBITDA, while typically it has been 6-7.
Low valuation of the paper industry has been an issue and this transaction is a mark of the correction, he said.
This valuation is reflected in the stock price movements of paper mills today, he said.
Mr R.R. Vederah, Managing Director, BILT, said “the deal reflects the (domestic) paper industry's value” which has traditionally been under-rated.
This is good news for large established players such as BILT, which is four times the size of APPM, and diversified.
The potential in the domestic market, which is expected to sustain the growth of the paper industry “for decades”, has attracted the attention of many international majors who will try to move in “one way or another” he said.
Mr N. Gopalaratnam, Managing Director, Seshasayee Paper and Boards, said the entry of the multinational player is a mark of the ‘bullish view of the Indian market.'
This is a sign that global players are comfortable with the level of technology, scale of operations and the market potential here.
The entry of multinationals will also help in the introduction of best practices from the developed markets, greater competition and exposure to new concepts.
Entry of MNCs positive
Global players have been trying to gain a foothold in the Indian market and this is the first of such efforts, he said.
According to industry experts, some of the players who are keen on an entry are Stora Enso, UPM Kymmene and April Fine.
The acquisition of existing players will be an attractive option as compared with the hassles of setting up a green-field project, including land acquisition and clearances.
The investment in a green-field project works out to about the cost of a new facility — about Rs 1-1.5 lakh for every tonne of annual production capacity — not to speak of the hassles of land acquisition, establishing a marketing network and starting from scratch, they said.
While the industry does not commit itself to an official estimate of the market for paper, the number most often quoted is about 10 million tonnes a year and is growing at about 8 per cent, with some segments such as copier paper growing at about twice that rate.