Mid-sized paper company Seshasayee Paper and Boards Limited is acquiring small paper producer Subburaj Papers Private Limited signaling a rare consolidation in the paper industry in the country. The acquisition will give Seshasayee a recently established paper mill near Tirunelveli in Tamil Nadu with a capacity of 60,000 tonnes per annum.
Seshasayee already has capacity to produce 1.15 lakh tonnes that is fully utilised and the firm needed to expand it or buy new capacities to grow further. Seshasayee has not disclosed the value of acquisition but said it plans to enhance the capacity of the acquired unit by 50% to 90,000 and the total investment including the money for acquiring 100% stake in Subburaj Papers will be Rs 250 crore.
Alongwith the added capacity, Seshasayee will have total capacity to produce 2 lakh tonnes of paper in the country. Subburaj’s mill is located in Tirunelveli that is close to Tuticorin port and would provide future platform for growth plans.
Subburaj Papers had set up the paper mill two years back based on eco-friendly secondary fibre. Subburaj Group decided to exit from paper business and approached Seshasayee for outright divestment, the company disclosed. The lenders to the company have approved a one-time settlement of their debt with Seshasayee.
However Seshasayee plans to operate the acquired outfit as a separate corporate entity for the time being and would decide on a merger option later.
Paper companies have been expanding capacity to boost their business as demand has been growing steadily in the country. Although it is known to grow at a slow pace, paper industry growth is closely alligned with GDP growth and 8% plus growth in Indian national income has been providing sufficient support for future demand to local firms to increase capacity.
While the top player Ballarpur Industries has already increased capacity at its local units, JK Paper is in the process of implementing a Rs 1,600 crore expansion programme and the country’s largest packaging paper maker ITC last week announced plans to invest Rs 3,000 crore to expand its capacity with a new plant in Andhra Pradesh.