Britannia, Colgate and Nestle will be most impacted by the new plastic waste management (PWM) rules that are likely to push up packaging costs for consumer firms, suggests a note by Kotak Institutional Equities. These new rules are likely to be implemented starting in a phased manner starting fiscal 2024-25 (FY25).
On the other hand, Godrej Consumer Products Limited (GCPL), ITC, Jyothy Labs and Varun Beverages Limited (VBL), the report said, will be least impacted by the new PWM rules.
“We believe that the cost increase will be higher for companies using a greater proportion of hard-to-recycle flexible plastics and multi-layered plastic (MLP); and categories that require the use of higher-grade recycled plastic that trade at a 40-60 per cent premium to virgin plastics—food and beverages and products that require transparent packaging,” wrote Sandeep Gupta and Prateeksha Malpani of Kotak Institutional Equities in a recent note.
Kotak’s assessment is based on relative overall revenue-based exposure of companies to five key variables: plastic, transparent plastic, food-grade plastic, flexible plastic and MLP.
Packaging costs of companies that Kotak Institutional Equities tracks, the KIE universe, are in the range of 5 – 13 per cent of their revenues, with a high exposure to plastic given its unique value proposition. In the absence of specific regulations, their analysts said, only a few companies make an express disclosure of their packaging costs.
Packaging costs of companies that Kotak Institutional Equities tracks, the KIE universe, are in the range of 5 – 13 per cent of their revenues, with a high exposure to plastic given its unique value proposition. In the absence of specific regulations, their analysts said, only a few companies make an express disclosure of their packaging costs.
While the mandatory norms for collecting back the plastic packaging introduced in the market by manufacturers / importers and brand-owners in a phased manner kicked in from FY22, the more stringent and cost-intensive norms for mandatory recycling and use of recycled content for packaging commences from FY25 and FY26, respectively.
Over the last two decades, global plastic production has nearly doubled―from 234 million tonnes (Mt) in 2000 to 460 Mt in 2019. The improper handling of plastic has led to a significant increase in global plastic waste generation, which, according to estimates, has more than doubled from 156 Mt in 2000 to 353 Mt in 2019.
In a business as usual scenario, the OECD expects the plastic use to triple (from its 2019 levels) to 1231 Mt by 2060 on the back of rising population and income levels, leading to a significant increase in waste generation that needs to be handled well to avoid the huge environmental impact.
Back home, plastic waste generation FY17-21 saw a compounded annual rate of growth (CAGR) of 27 per cent to 4.1Mt, the Kotak report suggests, outpacing the growth seen in plastic consumption (11 per cent CAGR), primarily on account of increased use of single-use plastics and unviable economics to collect / recycle plastic.
Among the lot, plastic recyclers such as Ganesha Ecosphere and companies such as EPL, Uflex and ITC, which can provide solutions for making plastic recyclable, develop products using PCR and offer economical alternatives to plastics, the Kotak report said, will be the key beneficiaries of the roll-out of the new PWM rules.
Going ahead, Kotak expects the plastic recycling industry to witness consolidation and the emergence of a few large players. Chemical recycling, the report said, is likely to emerge as the end-of-life solution to plastics in the long run. Being the early entrants, Reliance Industries and Uflex, the analysts said, may lead the adoption in India.
Shakti Plastics, Dalmia Polypro, AP Chemi, Banyan Nation, Deluxe Recycling, GEM Enviro Management, JB Ecotex are the unlisted players in the plastic waste recycling that will stand to gain from the new rules, according to the Kotak report.
