𝗧𝗮𝗶𝗹𝘄𝗶𝗻𝗱: As per the Extended Producer Responsibility (EPR) norms, brand owners and manufacturers are required to have a minimum of 30% recycled content in their plastic packaging (incl. PET bottles) in FY26. The requirement increases by 10% every year to 60% in FY29.
This is a huge demand driver for companies making recycled chips by using scrap PET bottles.
However, on paper, the demand — driven by this regulatory compliance — is outstripping supply. There is not enough recycling capacity to meet this growing demand.
𝗛𝗲𝗮𝗱𝘄𝗶𝗻𝗱 (temporary): Ministry of Environment, Forest and Climate Change of India recently issued a draft notification proposing that any shortfall in the mandatory usage of recycled content in FY26 can be made up over the next 3 years, though that makeup would be over and above the individual targets of the respective future years.
𝗖𝘆𝗰𝗹𝗶𝗰𝗮𝗹𝗶𝘁𝘆: Currently, the prices of recycled chips required to make PET bottles is very high vs the virgin raw material.
Why? A lot of the recycled intermediate raw material was exported leading to a shortfall in India. Moreover, the prices of virgin raw material have fallen due to the cooling off of crude prices – further widening the pricing gap between recycled and virgin raw material.
𝗥𝗲𝘀𝘂𝗹𝘁𝗶𝗻𝗴 𝗜𝗺𝗽𝗮𝗰𝘁: The temporary headwinds + unfavorable cyclicality has pushed FMCG companies and PET bottlers like Varun Beverages etc. (incl. the ones starting consumption very soon) to cut down down their recycled raw material purchases – leading to low / no growth (and significant market value decline) for the PET bottle recyclers.
“In the short term the stock market is a voting machine, but in the long run it is a weighing machine” – Benjamin Graham
In the video linked below, I discuss a framework on how an aspiring equity analyst or a budding investor can carry out end-to-end analysis of this industry (or any industry for that matter) and business fundamentals.
Please reach out me at gautamrastogi.investandrise@gmail.com for any questions.
Disclosure: I have initiated a small position in this company. Will increase my stake if I find the price favorable
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