Aditya Birla’s paper biz divestment amplifies focus on real estate
Source: Live Mint
Aditya Birla Real Estate Ltd (ABREL) is divesting its paper division, Century Pulp and Paper, to ITC Ltd in a move that will allow it to sharpen its focus on real estate. According to ABREL, the sale enhances strategic alignment, improves operational efficiency, and unlocks value for shareholders.
The sale consideration of nearly ₹3,500 crore exceeded expectations. For instance, Antique Stock Broking had valued the paper business at around ₹3,200 crore, while Nomura Global Markets Research, in its sum-of-the-parts valuation, estimated it at ₹2,000 crore, based on a 10x FY25 forecasted EV/Ebitda multiple.
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In contrast, Nomura’s 31 March report noted that ABREL’s pulp and paper business was valued at ₹3,500 crore in the sale, reflecting an 18x EV/Ebitda multiple for FY25—significantly higher than its earlier estimate. (EV refers to enterprise value, while Ebitda stands for earnings before interest, tax, depreciation, and amortization.)
To be sure, growth has been a challenge for ABREL’s paper business lately. In FY24, the segment’s revenue at a consolidated level fell 5.5% year-on-year to ₹3,375 crore, while revenue for the nine months ended December (9MFY24) declined 5% to ₹2,382 crore. The segment’s Ebitda margin contracted by 410 basis points in FY24 and 760 basis points in 9MFY24.
Against this backdrop, the latest transaction would help ease the pressure on ABREL’s balance sheet. Consolidated net debt stood at ₹4,300 crore as of end of December, with net debt-to-equity rising to 1.06x from 0.61x at FY24-end. “With the latest transaction, the company’s consolidated net debt is likely to decline significantly (making it nearly net-debt-free), thus enhancing the company’s business development potential,” says Nomura.
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In January, a project-level private equity (PE) deal with Mitsubishi Estate generated a cash flow of ₹280 crore for ABREL. “With paper sales, the PE deal, and strong sales momentum in FY24 and FY25, ABREL will have sufficient firepower to sustain its business development efforts,” pointed out Antique. However, it cautioned that, “While strong cash flow visibility from the real estate business is expected, significant realization will occur only from FY27 onwards (Niyaara would be nearing completion).”
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ABREL’s shares are down 21% so far in 2025. In the near term, Q4FY25 results will be a key indicator for investors, with pre-sales figures under scrutiny. The stock’s future will also hinge on the success of the Niyaara phase 3 launch in FY26.
