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Plastic straw ban worries beverage makers but Dabur may not singe its fingers

Plastic straw ban worries beverage makers but Dabur may not singe its fingers

Plastic straw ban worries beverage makers but Dabur may not singe its fingers
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By Dipti Sharma   | Asmita Pant  Jul 14, 2022 6:16:12 PM IST (Updated)

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As part of the ban on manufacturing, import, stocking, distribution, sale and use of identified single-use plastic (SUP) products throughout India, plastic straws that come integrated with fruit juice or dairy product tetra packs have been banned starting July 1. Market participants believe that listed FMCG player Dabur India may not singe its fingers as much. The food and beverages portfolio stands at 18 percent for Dabur. The beverages portfolio constitutes about 80 percent of this 18 percent. And small tetra pack products form a small part of this 80 percent, said an analyst from a domestic brokerage firm. “Dabur’s earnings are unlikely to be significantly impacted, though profitability could take a hit of 70-100 basis points,” she added.

It was a long time coming. Still, the single-use plastic ban has caused chaos among tetra pack beverage makers in India. Even the big names in fast-moving consumer goods (FMCG) are expected to bear the brunt.

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But market participants believe that listed FMCG player Dabur India may not singe its fingers as much. The firm sells juices, milkshakes, and coconut water in small tetra packs with plastic straws under its 'Real' brand.
The food and beverages portfolio stands at 18 percent for Dabur. And though the beverages portfolio constitutes about 80 percent of this, small tetra packs form a small part, said an analyst from a domestic brokerage firm.
“Dabur’s earnings are unlikely to be significantly impacted, though profitability could take a hit of 70-100 basis points,” the analyst said and added that the listed company’s cost efficiencies and power to pass on price hikes would help it offset the hit to its margin.
Manufacturing, importing, stocking, distribution, sale and use of single-use plastic (SUP) products, including plastic straws that come with fruit juice or dairy product tetra packs, have been banned from July 1.
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Items with low utility and high littering potential are not widely used by large consumer companies and, hence, will have a limited impact on listed companies for now, according to Kotak Institutional Equities.
“Replacement of plastic straws, used with low-value packs of juices/beverages (by companies like Dabur around 2.5 percent sales), could lead to an increase in cost from Rs 0.25-0.30 to Rs 1-1.25 per unit (industry estimates),” the domestic brokerage firm said in a note to clients.
Around 6 billion plastic straws attached to small beverage packs of Frooti, Maaza, Real juices, Amul buttermilk, among others, are sold annually in India. And FMCG giants including Parle Agro, Pepsico India, Dabur India and Amul, are worried of this new rule causing massive disruption in the industry.
CNBC-TV18.com reached out to Amul and PepsiCo India. The former was unable to comment while the latter declined to comment on the situation, citing an industry-wide challenge.
Small tetra packs make up about 40-60 percent of beverage portfolios of some of the FMCG companies. While the number for Parle Agro, which sells Frooti, Smoodh, etc., stands at 40 percent, Amul sells about 15-20 lakh straws daily attached to its products like lassi and buttermilk, according to industry players.
Some beverage makers have resorted to importing paper straws while some are resorting to manufacturing biodegradable straws, which are cheaper compared to paper straws.
“India doesn't have sufficient capacity to produce industry's requirement. As an industry, we can't keep importing because the costs are 500 percent more than what we have been paying. Apart from importing, there are shipping challenges. Logistics costs are also 5x more now and importing straws cannot be a solution to this. Six months would allow the industry to set up infra here in India, build required capacity,” Schauna Chauhan, CEO, Parle Agro, had told CNBC-TV18.
Dabur has already commenced production of Real juice packs with paper straws and even Parle Agro has started integrating biodegradable straws at manufacturing locations, as per a report. Amul is resorting to the use of biodegradable straws, reports said.
(With inputs from Shilpa Ranipeta)
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