International Paper in talks to buy SK Bangur-controlled West Coast Paper
US-based International Paper is in talks to buy the SK Bangur-controlled West Coast Paper valued between Rs 800 to 1,200 cr.
MUMBAI: Having whetted its appetite, the US-based International Paper, which last year acquired Andhra Paper Mills for about $425 million (about 1,900 crore then), is now in talks to buy the SK Bangur-controlled West Coast Paper for a deal likely to be valued between 800 crore and 1,200 crore.An initial round of negotiations between the Memphis-based International Paper and West Coast Paper was held recently where valuations and future expansion plans for the plant located in Dandelli, Karnataka, were discussed.
The $26-billion International Paper wants to build a strong presence in the Indian paper market, which is considered to be one of the world's fastest growing regions for writing and printing paper. Demand for the commodity has been growing 8% annually.
International Paper is a leading player in the paper and packaging industry with manufacturing plants in North America, Europe, Latin America, Asia and North Africa. Slowing demand for paper in Europe and North America has pushed paper makers like International Paper to explore opportunities in Asia.
Buying of significant equity stakes in Indian companies has become relatively easier as new capital market norms allow a company to acquire up to 25 per cent in another company without breaching the takeover threshold. Earlier, Sebi norms had a ceiling of 15 per cent, above which an open offer to retail shareholders was mandatory.
While the market capitalisation of West Coast Paper is currently at 444 crore, valuations of Indian paper companies have been re-rated after International Paper in 2011 paid a 205 per cent premium for the promoters' stake in AP Paper.
The Bangur family owns about 55 per cent in West Coast Paper, India's second-largest by capacity and one of the leading makers of writing and printing paper. The company produced 3,08,230 tonnes last year and had sales of 1,306 crore. It posted a loss of 33.56 crore mainly due to the sharp increase in costs, mainly coal which had risen 18 per cent.
Rohan Gupta, an analyst at Emkay Global, said that with buoyant demand and supply-side constraint, paper prices are likely to increase which will facilitate margin expansion going forward. Currency depreciation is also likely to support prices at higher level. In a recent media interaction, Andhra Paper India MD Rampraveen Swaminathan had said that the long-term outlook for the paper industry in India are bright as the per capita consumption of paper was still very low. India had nearly 15 per cent of the global population, but currently consumes only about 2 per cent of the world's paper output, he added.