A ₹3,498 crore paper play: A windfall for ABREL, a growth bet for ITC

A legacy business changed hands, marking a pivotal shift for two corporate giants.

ITC Ltd is making a ₹3,498 crore bet on the future of India's paper industry by acquiring Century Pulp & Paper (CPP), the paper division of Aditya Birla Real Estate Ltd (ABREL). But for ABREL, this isn’t just about selling a business—it’s about rewriting its identity. With this sale, ABREL is shedding a decades-old segment to cement itself as a pure-play real estate powerhouse.

This isn’t a routine acquisition—it’s a strategic pivot for both companies. ITC is strengthening its dominance in paper and sustainable packaging, while ABREL is exiting a cyclical business to go all-in on real estate, a sector where it sees stronger long-term growth.

Read this | Aditya Birla’s paper biz divestment amplifies focus on real estate

Here’s how the move reshapes both companies.

ABREL’s pivot to a pure real estate business

ABREL operates in two segments—real estate and paper.

While its paper business has been the primary revenue driver since 1984, contributing ₹3,375 crore (79%) of its ₹4,264 crore topline in FY24, it has been facing increasing headwinds. Weak domestic demand, competitive pricing, and rising input costs have weighed on performance, with revenue declining 6% in FY24 and another 5% in 9MFY25. Ebitda took an even bigger hit, plunging 57% in 9MFY25, while margins crashed from 14% to 6.4%.

In contrast, real estate—a relatively new segment for ABREL, started in 2016—has been on a rapid growth trajectory. Despite contributing just ₹832 crore (20%) to the topline in FY24, the segment is expanding fast. Revenue surged 507% last year and another 375% year-on-year in 9MFY25 to ₹776 crore. Ebitda also rose 65%, though margins declined to 6.2% from 18%, reflecting the aggressive scale-up.

With the paper business struggling and real estate gaining momentum, ABREL made the strategic decision to divest its legacy segment. While the paper business carried no long-term debt, ABREL’s consolidated net debt has surged from ₹2,400 crore to ₹4,300 crore in the past year, pushing its net debt-to-equity ratio from 0.26 in FY23 to 1.06. This financial strain came as the company prepared for a major real estate project in Mumbai’s Worli, with an estimated gross development value of ₹6,100 crore.

Read this | LG India’s IPO eyes a premium valuation—will investors bite?

Selling the paper division provides ABREL with ₹3,498 crore in cash, easing its debt burden and providing ample capital to sustain growth. The company has an ongoing project pipeline with a revenue potential of ₹63,350 crore.

This move aligns with ABREL’s broader strategy of streamlining its portfolio to focus on high-growth businesses.

Since 2019, the company has been systematically exiting low-growth segments, merging its cement business with UltraTech, demerging its yarn and denim division, and discontinuing its textiles operations. The final step came in 2024 when it rebranded from Century Textile to Aditya Birla Real Estate.

With the latest divestment, ABREL is now a focused real estate company in a high-return segment, well-positioned for long-term success, according to Antique Stockbroking.

ITC's paper business expansion

For ITC, the deal is a game-changer. The acquisition includes the Century paper mill in Lalkuan, Uttarakhand, which has an annual capacity of 4.8 lakh metric tonnes per annum (MTPA). This expands ITC’s total paper capacity by 60% to 12.8 lakh MTPA, cementing its leadership in the paper and sustainable packaging industry.

Beyond capacity expansion, the deal enhances ITC’s geographical reach. Until now, its paper production was concentrated in southern and eastern India. Acquiring Century Pulp—an established player in northern India—gives ITC a strong foothold in the region, improving market access and customer reach.

Financially, the acquisition immediately boosts ITC’s paper business revenue by 40% to ₹11,719 crore, up from ₹8,344 crore in FY24. This translates into a 5% increase in ITC’s total gross revenue of ₹69,446 crore. With Ebitda margins in line with ITC’s existing paper business, the deal is expected to be earnings accretive from year one.

Read this | DLF's ₹1 trillion bet: Can the real estate major stay ahead of a cooling market?

ITC is also eyeing efficiency gains. Through value unlocking and capacity debottlenecking, it aims for a 30-40% increase in Ebitda per tonne within two years. In the medium term, the company expects high-teen returns on capital employed from this investment.

A bargain deal for ITC?

The ₹3,498 crore transaction is valued at approximately one-time sales of Century Pulp’s FY24 revenue of ₹3,375 crore. This is in line with industry peers like JK Paper, which trades at a similar valuation.

ITC is funding the acquisition internally, leveraging cash flows from its paper business, which generated ₹4,000 crore during FY20-24. This aligns with ITC’s broader diversification strategy beyond its core cigarette business.

On an EV/Ebitda basis, the deal is valued at 6.9x, comparable to JK Paper’s 6.3x. With the paper industry facing near-term headwinds, ITC may have secured the acquisition at a reasonable valuation.

However, the success of the deal depends on a sectoral recovery. Like Century Pulp, ITC’s paper business has been under pressure, with stagnant revenue and falling margins. The acquisition will be truly value-accretive once industry conditions improve.

There are positive signs on the horizon. The sector is expecting anti-dumping measures that could curb imports, while raw material costs—especially wood prices—are projected to decline in the coming quarters.

For more such analyses, read Profit Pulse.

In the long run, India’s paper industry has significant growth potential. Per capita paper consumption in India stands at just 15-16 kg—far below the global average of 57 kg—leaving ample room for expansion. As a market leader, ITC is well positioned to capitalize on this growth.

About the Author: Madhvendra has been a passionate follower of the equity market for over seven years and a seasoned financial content writer. He loves reading and sharing his opinions about publicly listed Indian companies and macroeconomic trends. 

Disclosure: The writer does not hold the stocks discussed in this article.

The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.