As the ban on single-use plastic came into effect this month, analysts do not see much impact on listed companies. However, as and when the restrictions are expanded to sachets, pouches, wrappers, etc, a number of FMCG companies in the listed space will be affected.
“The current ban covers items which have a low utility and high littering potential. These are not widely used by large consumer companies and hence will have a limited impact for now,” a report by Kotak Institutional Equities said.
Amongst the banned items, plastic straws which are used with low-value packs of juices/beverages (by companies like
) could see an increase in cost from Rs 0.25-0.30 to Rs1-1.25 per unit as they switch to imported paper straws, it said.
Cigarette companies, on the other hand, have already migrated to bio-degradable plastic wraps and hence may not witness an incremental impact.
“We believe that the share of plastics used for these banned SUPs (single-use plastic) is not large (less than 2-3%) and our interactions with industry experts suggest that the maximum impact would be on polystyrene (PS). The key producers of PS in India are Supreme Petrochem and LG polymers,” Kotak analyst Sandeep Gupta said in a report.
However, if the ban is extended to single-use plastic that is used for packaging it could impact consumer companies that sell biscuits, instant noodles, tea, detergent powders, shampoos, milk, edible oils, etc.
“We note that price point packs (low unit packs; primarily have plastic packaging) account for about 30%+ of overall volumes for companies such as (about 50-60% for ). Replacement of plastic with environment-friendly substitutes could increase packaging costs meaningfully, especially in the case of sachets; thus, any broad-based ban on SUP in the medium term could impact volumes as well as the profitability of the sector,” Kotak said.
The list of low utility and high littering potential single-use plastic items that have been banned in India from July include plastic cutlery items, straws, cigarette packets, sweet boxes, etc.
After the ban came into effect from Friday, leading companies, including Parle Agro, Dabur, Amul and Mother Dairy, have replaced plastic straws with paper-based straws and other alternative sustainable solutions.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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