ITC, VBL, Britannia, Nestle, Uflex: PWM rules may hit FMCG cos; here are key beneficiaries

Britannia Industries Ltd, Colgate-Palmolive Ltd and Nestle India Ltd will be the most impacted consumer companies, as India introduced mandatory regulations for the recycling and reuse of plastic packaging starting from FY2025 to control the plastic waste menace, said Kotak Institutional Equities.

India is the third-largest plastic waste generator globally. In terms of handling the plastic waste problem, these new laws may put India ahead in the global league, the brokerage said. But it would also increase the packaging costs of consumer staple companies, the brokerage added.

Kotak said Britannia Industries, Colgate-Palmolive and Nestle India will be the most impacted, while Godrej Consumer Products Ltd (GCPL), ITC, Jyothy Labs and Varun Beverages Ltd (VBL) will remain the least impacted by the new plastic waste management (PWM) rules.

"Our 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. We believe that the cost increase will be higher for companies using a greater proportion of: (1) hard-to-recycle flexible plastics and MLP and (2) 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," it said.

Kotak said plastic recyclers such as Ganesha Ecosphere and innovative packaging 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, will be the key beneficiaries of the roll-out of the new PWM rules.

"We expect the plastic recycling industry to witness consolidation and the emergence of a few large players. Chemical recycling (currently uneconomical with products being sold at ~2-3 times their virgin equivalent) is likely to emerge as the end-of-life solution to plastics in the long run. Being the early entrants, Reliance and Uflex may lead the adoption in India," it said.