Paper Stocks In Demand Amid Ban On Certain Single-Use Plastic Items

Stocks of companies related to paper industry have gained amid a ban on certain Single-Use Plastic (SUP) items that kicked in from Friday.

Over the past one month, some of the paper manufacturers, including Seshasayee Paper, have risen in the range of 3-8 per cent. In contrast, equity benchmark indices Sensex and Nifty have declined 5 per cent during the same period.

The Sensex has fallen by 2,658.48 points or 4.78 per cent in the past one month (May 31-July 1) while the Nifty declined 832.5 points or 5.01 per cent.

During the past one month, shares of Seshasayee Paper and Boards jumped 7.80 per cent, Tamil Nadu Newsprint & Papers rallied 7.07 per cent, Satia Industries gained 5.54 per cent and West Coast Paper Mills went higher by 3.15 per cent.

The ban on single-use plastic, which was announced last year, has come into effect from Friday.

Since June 30, shares of Seshasayee Paper and Boards jumped 7 per cent, Andhra Paper gained 6.21 per cent, Tamil Nadu Newsprint & Papers climbed 4.62 per cent and Satia Industries advanced 4.62 per cent on the BSE.

Among others, Star Paper Mills went higher by 4.14 per cent, Emami Paper Mills gained 3.92 per cent, West Coast Paper Mills (3.83 per cent), Orient Paper & Industries (3.10 per cent), JK Paper (2.93 per cent) and Astron Paper & Board Mill (2.64 per cent).

The ban is in place for SUP items, including earbuds, plastic sticks for balloons, flags, candy sticks, ice-cream sticks, polystyrene (thermocol), plates, cups, glasses, forks, spoons, knives, straws and trays. Other items include wrapping or packaging films around sweets boxes, invitation cards, cigarette packets, plastic or PVC banners of less than 100 microns, and stirrers.

These plastic products will have to be replaced by environment-friendly biodegradable products, like paper-based alternatives.

"While theoretically, paper companies should benefit out of this ban, most paper companies do not manufacture any of these items and may not want to venture into these in the near term," Deepak Jasani, Head of Retail Research at HDFC Securities, said.

With the ban on plastic straws coming into effect from Friday, large FMCG and agro-food companies have removed integrated plastic straws from small tetra packs of fruit juices as well as dairy products, and are shifting to paper-based straws and other alternative sustainable solutions.

Leading companies, including Parle Agro, Dabur, Amul and Mother Dairy, have replaced integrated plastic straws in the tetra packs with alternative sustainable solutions.

"Finally, the ban on single-use plastic... has fructified now. Although the benefit of this move on listed paper stocks is limited, it is pertinent to note that leading paper producers are seeing good traction in demand," S Ranganathan, Head of Research at LKP Securities, said.

According to a report by Kotak Institutional Equities, India's ban on identified SUP items with effect from July 2022 is a step in the right direction.

"The current ban will have a minimal impact on the financials of listed entities. However, a potential extension of this ban to other SUP items such as sachets/pouches/ wrappers/laminated tubes in the medium-term could impact the volumes or profitability of many consumer good categories," it added.

Further, the report said 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.