International Paper to raise Andhra Paper capacity 20%

US-based paper major International Paper which bought a majority stake in Andhra Pradesh Paper Mills (APPM) for a huge premium is aiming at 20% productivity improvement at the Indian company in two years. The US firm is also optimistic of closing the buyout by September-end.

“We think that we can get about 20% productivity improvement out of the existing pulp mill and paper machines that are at two locations,” said Thomas Kadien, senior vice-president of consumer packaging & IP Asia on the company’s earning call. The US company aims to achieve this capacity increase in two years with no additional capital expenditure.

In fiscal 2010, APPM’s total production was around 176,452 million tonnes (paper and pulp). As on March 31, 2010, the total capacity of Rajahmundry unit was around 174,000 million tonnes per annum (mtpa) of finished paper production and 182,500 mtpa of bleached pulp production. The capacity of the second unit at Kadiam was around 67,000 mtpa of finished paper.

International Paper is also positive on improving APPM’s current earnings before interest, taxes, depreciation and amortisation (Ebitda) margins of 23% in the next couple of years.

However, International Paper would look at expansion at the Indian company only in the long run.

“What I would call Phase II, two years down the road, we’ll be looking at expansion projects as we have done when we got into other emerging markets,” Kadien said. In March 2011, International Paper had announced plans to purchase 53.5% of the outstanding shares of APPM for $257 million in cash and also launch a mandatory open offer to acquire up to 21.5% of the outstanding shares of APPM for $104 million.

The company expects approvals from the Reserve Bank of India and Securities and Exchange Board of India by the end of the next month. “We’re hopeful of close. We’ve got no indication of any issues, so it could close early third quarter,” the official said.