Emami says it’s circling bleeding paper units

Emami Paper Mills Ltd, the largest newsprint supplier in the country, is in advanced stages of negotiations for some acquisitions, which could double its capacity.

“We are actively pursuing some deals —  both listed as well as unlisted companies — and we see some acquisitions of capacities ranging between 1.5 lakh tonnes and 2 lakh tonnes happening within the next six months,” executive director PS Patwari said.

Patwari refused to divulge the names of the firms being eyed, but said they are mostly loss-making outfits.

“We consider ourselves to be the lowest cost maker of newsprint in the country and we would invest in the companies, transforming the way they manufacture, to help them turn around,” he said.

Emami Paper currently produces 1.5 lakh tonnes of paper, mostly newsprint, at Balasore in Orissa and a little quantity at its Kolkata plant.

India’s total newsprint capacity stands at 8 lakh tonnes as against a demand of about 20 lakh tonnes, the balance being met by imports.

The acquisitions would have happened even before, but for the recent mega deal in the paper sector — that of US-based International Paper Co buying a majority stake of 53.5% from the promoters of Andhra Pradesh Paper Mills in a deal worth Rs1,400 crore, which according to Patwari is four times the market valuation.

While the deal took the industry as well as the capital market by surprise on March 30, triggering a rush for scrips of paper companies, it has queered the pitch somewhat for domestic firms such as Emami Paper, which are also looking at acquisitions, but only at realistic prices.      

“The whole AP paper deal has changed the dynamics of the industry: the prospective sellers of capacities are now thinking of holding on to their assets in the hope of better valuation. But they have to realise that only foreign investors with a cash pile can think of paying such a price and that too only for an efficient producer like AP Paper and not for all,” Patwari said.

Emami Paper’s aims are modest: it is eyeing mostly loss making units, and is ready to wait for the hype to subside and the expectation of sellers to touch more realistic levels before striking a deal.

The company, meanwhile, is pursuing its own organic expansion programme that would treble its present capacity by adding 1.5 lakh tonnes of coated writing paper at Balasore and a similar capacity for duplex board.

The new capacities, to be commissioned within the next three years, will use wood pulp sourced from the company’s own plantation, now being created over an area having a 300km radius in Orissa, Jharkhand and West Bengal.

Emami Paper would be investing close to Rs1,500 crore on writing paper capacity and another Rs800 crore on the duplex board facility.

“Most of this Rs2,300 crore investment would be funded out of internal accruals and debt while a small portion could be raised from a public issue,” Patwari said.

The new capacity would help Emami Paper, so far dependent on the low-margin newsprint business, to improve profitability and increase its annual turnover from Rs450 crore to about Rs1,100 crore over the next three years.