Plastic ban will have minimal impact on listed FMCG companies

NEW DELHI: India’s decision to ban certain single-use plastic items (SUPs) will have minimal impact on the finances of entities listed in the fast-moving consumer goods (FMCG) category, officials said on Monday. Kotak Institutional Equities analysts in a note.

The Center has banned the manufacture, import, distribution and sale of single-use plastic items nationwide, effective July 1. Listing items include headphones with plastic sticks, plastic balloon sticks, plastic flags, candy sticks, ice cream sticks, polystyrene decorations, plastic plates, cups, glasses, cutlery such as forks, spoons, knives, straws, etc.

For CPG manufacturers listed, exposure to these products largely includes items such as straws and the like.

Kotak Institutional Equities analysts said a possible extension of the ban to other single-use plastic items such as pouches, pouches, wrappers and laminated tubes in the medium term could impact volumes or profitability of many categories of consumer goods, especially for low-priced products. stock keeping units.

The share of plastics used for these banned single-use plastic items is less than 2-3%, they added.

India has the dubious distinction of being the fifth highest country in terms of plastic waste generation, with a discharge of 3.5 million tons in FY20. Per capita, plastic waste generation in India nearly doubled in FY 2016-20.

“The current ban covers items that have low utility and high litter potential. These are not widely used by large consumer businesses and will therefore have limited impact at this time. plastic straws which are used with low value juice and drink packs (by companies like Dabur 2.5% of sales) could see their cost increase from Rs 0.25-0.30 to Rs 1-1.25 Rs per unit when they switch to importing paper straws,” the analysts said.

Meanwhile, cigarette manufacturers have already migrated to biodegradable plastic packaging and therefore may not witness an additional impact.

The ban on single-use plastic came into effect despite pressure from businesses on the government to delay the transition, citing expensive alternatives and their lack of availability.

Meanwhile, several FMCG companies said they have started producing items with paper straws. Last week, companies such as Parle Agro and Dabur India told Mint they were moving forward with plans to replace plastic straws with paper ones. Dabur India has started production of Real juice packs with built-in paper straws, he said.

However, some companies had also warned against “staggered” supplies of imported paper straws. This is because India has a constraint in manufacturing paper straws and hence companies rely on imports to meet the demand.

The Department of the Environment has formed a task force in all states and union territories to verify the illegal manufacture, import, storage, distribution, sale and use of plastic items in single use prohibited.

Kotak Institutional Equities analysts added that single-use plastic aside, fast-moving businesses rely significantly on non-rigid plastic packaging, especially to wrap items such as cookies, noodles instant drinks, tea, powdered detergents, shampoos, milk, edible oils, etc.

Any restrictions on these could wreak havoc on companies’ margins, they said.

“We note that price packs (low unit packs; have mostly plastic packaging) represent around 30% of overall volumes for companies such as HUL and around 50-60% for Britannia. Replacing plastic with environmentally friendly substitutes could significantly increase packaging costs, especially in the case of pouches; thus, any widespread ban on single-use plastic in the medium term could impact volumes as well as the profitability of the sector,” they added.

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