Britannia, Nestle, Colgate most vulnerable to India's new PWM norms, say Kotak analysts

Company-wise, Britannia, Colgate and Nestle is expected to be most impacted, while Godrej Consumer Products, ITC, Jyothy Labs and Varun Beverages will remain the least impacted by the new PWM rules, say analysts

India's new plastic waste management (PWM) norms are likely to impact the FY25 revenues of consumer staple companies, including Britannia, Nestle and Colgate, as their packaging costs are set to rise, analysts at brokerage Kotak Institutional Equities wrote in a recent note.

The new PWM norms, which govern recycling and reuse of recycled content by producers, importers, and brand owners of plastic packaging material, will be implemented in a phased manner from FY25 onwards. India is the third-largest plastic waste generator globally.

Packaging costs to rise for consumer staple companies

In terms of handling the plastic waste menace, the new laws may put India ahead in the global league, but they will also increase the packaging costs of consumer staple companies, said the Kotak analysts.

"Based on our estimates, the consumer staple companies spend, on average, 5-8 percent of their revenues on packaging and remain highly
reliant on plastics. While companies so far have optimised most of their packaging costs by reducing the intensity of plastic usage ... little progress has been made by most of them in recycling or using the recycled content for packaging. This could result in higher costs going forward," they wrote.

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Britannia, Colgate, Nestle to be the most vulnerable

Among the impacted companies, Britannia, Colgate, and Nestle are expected to be the most affected, while Godrej Consumer Products, ITC, Jyothy Labs, and Varun Beverages are likely to face less of an impact as they have aligned themselves with the 3R (reduce, recycle, and reuse) approach.

The brokerage has assessed the impact of the PWM norms on consumer staples companies on the basis of their overall revenue exposure to five key variables: plastic, transparent plastic, food-grade plastic, flexible plastic, and multi-layered plastic (MLP).

Companies with a higher proportion of hard-to-recycle flexible plastics and MLP are expected to incur higher cost increases. Britannia, Colgate and Nestle, with their higher exposure to flexible or MLP and food-grade plastic packaging, are considered the most vulnerable to the new PWM norms.

"Colgate has the highest exposure to MLP, owing to the nature of its product portfolio, as toothpaste is mainly packed in nonrecyclable laminate tubes. Britannia, Dabur, HUL and Nestle have relatively medium exposure to MLP packaging," the note added.

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Ganesha Ecosphere, Uflex and others to benefit

On the other hand, plastic recyclers such as Ganesha Ecosphere and innovative packaging companies such as EPL, Uflex, and ITC are expected to benefit from the rollout of the new PWM rules. These companies can provide solutions to make plastic recyclable, develop products using post-consumer recycled (PCR) materials, and offer cost-effective alternatives to plastics.

Kotak Institutional Equities expects the plastic recycling industry to witness a consolidation, with a few large players emerging. Chemical recycling, although currently uneconomical, is likely to become the end-of-life solution for plastics in the long run.

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