‘Priority will be to optimise AP Paper Mills’ existing operations’

The Indian paper industry sector was re-rated after the NYSE-listed $27 billion International Paper (IP) announced its India entry in March through the acquisition of a controlling stake in AP Paper Mills (APPM).

The company is investing close to Rs 2,000 crore for about 75 per cent stake in the Andhra Pradesh-based company with two mills near Rajahmundry. A high-powered delegation of IP met the Andhra Pradesh Chief Minister, Mr N. Kiran Kumar Reddy, and outlined their plans.

Mr Paul Brown, President, International Paper, Asia, in an email interaction with Business Line , explains the rationale behind the acquisition.

You seem to have paid premium to acquire AP Paper?

The premium reflects the cost of entry into a high-growth market. We value APPM as a strategic entry point into the paper and packaging market of the country. The premium we paid reflects the opportunity to access a growing market as well as a payment to the Bangur family for a three-year non-compete agreement.

Indian law allows a payment of up to 25 per cent premium to controlling shareholders as a non-compete payment. APPM has grown EBITDA at 20 per cent annually over a five-year period. We believe it has significant scalability and expansion potential.

Do you see the prospect of expanding or further diversifying the AP Paper unit?

We plan to explore opportunities to grow the existing paper business at APPM. It is too early to talk about concrete plans though.

Any more targets in India? How did you zero in on APPM?

We are not currently looking at any other acquisitions in India. International Paper has had an established office in India since 2002, as a platform to understand the Indian paper industry. We were on the lookout for a company that would help us gain a foothold in this growing market. An established and reputable company with good assets and access to raw materials. APPM presented that opportunity. It's a highly respected company with good assets, access to fibre and market-leading brands, where our global operating experience can be advantageous.

How will AP Paper help you grow business in the Asia-Pacific region?

The Indian market is one of the fastest-growing for paper and packaging in the world, growing at 8 per cent annually. India has 15 per cent of the world's population, but consumes less than 2 per cent of the world's paper. The rapid economic growth, combined with advances in education infrastructure and the burgeoning middle-class will bolster the growth of paper consumption in India over the next several years.

We view this agreement as a two-way street. AP Paper gives us a strong foothold in this growing market and also an opportunity to optimise its existing operations. International Paper has a proven track record of bringing global best practices in operational excellence, industrial safety and social responsibility into our emerging market investments. We intend to do the same in India with APPM.

Will AP Paper's manufacturing capability be useful for supplies in the region?

There is enough domestic demand for paper in India and we only see that increasing. Paper consumption in India is projected to grow at more than 5 per cent a year, and packaging at more than 8 per cent. The priority would be to optimise APPM's existing operations to fulfil the growing domestic demand.

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