The share price of ITC to remain in focus in Tuesday’s trade as it acquired Aditya Birla Real Estate’s Century Pulp and Paper for Rs 3,498 crore. The acquisition will help the company to expand its foothold in the north. Nomura has given a Buy rating to Aditya Birla Real Estate on the possibility of the company’s debt becoming 0 after the deal while it alrady has a Buy on ITC.
The Century’s paper factory is situated in Lalkuan, Uttarakhand while ITC’s all four paper facilities are located in South India. The acquisition of Century helped the company to increase its paperboards and specialty papers business annual capacity by almost half its annual capacity.
ITC’s paperboards and specialty papers business has an annual capacity of over 1 million tonnes while that of Century Paper has an installed capacity of 480,000 mt per annum.
“ITC Limited has signed a Business Transfer Agreement today to acquire the Pulp and Paper Undertaking (‘CPP’) of Aditya Birla Real Estate Limited (‘ABREL’). Established in 1984 at Lalkuan (Nainital, Uttarakhand), CPP is a well-established player in the Indian Paper industry with an installed capacity of 4.8 Lakh MT per annum,” said ITC in an exchange filing. “ITC’s Paperboards & Specialty Papers Business is a reputable player in the industry offering a wide range of products manufactured at its four world-class facilities with an annual throughput of over 1 million MT.”
Nomura on Aditya Birla Real Estate, ITC
In a research note, Nomura has a Buy on Aditya Birla Real Estate with a target price of Rs 2700 per share. This implies an upside of xx%. With the latest transaction, Aditya Birla Real Estate’s consolidated net debt is likely to decline significantly (making it nearly net-debt-free), thus enhancing the company’s business development potential.
According to Nomura, pulp and paper business’ valuation is higher than in their valuation of the company. While the Rs 3500 crore deal values the business at 18x FY25 earnings, Nomura values the company at 10x FY25 earnings. The fact that it is early close to becoming net debt free also implies stronger business development potential.
Nomura also has a Buy recommendation on ITC.
Financial performance of ITC’s pulp and paper segment
In FY24, ITC had a total revenue of Rs 69,446 crore out of which ITC’s pulp and paper business contributed Rs 8,344 crore revenue. The business segment has an average EBIT margin of 21% from FY19-24. Over FY20-24, the cumulative free cash flow generation was over Rs 4,000 crore. In Q3 FY25, the segment registered a revenue growth of 3% YoY, driven by strong growth in exports.
ITC Q3 result
The company on a consolidated basis reported a net profit of Rs 5,013.2 crore, a drop of 7% on year. However, its revenue from operations rose by 7.7% YoY to Rs 20,350 crore from Rs 18,880.4 crore in the same quarter of the previous financial year.
ITC’s stock performance
The share price of ITC has fallen 0.18% in the past five trading days. The stock has risen 3.22% in the last one month. It has wiped out more than 20% of investors’ wealth in the last six months. The stock price has fallen 4% in the previous one year.