Double whammy looms for plastic products industry: CRISIL SME Tracker

CRISIL Research expects a combination of weak demand from end-user industries and the ban on single-use plastics to slash growth of the plastics and plastic products industry by 200 basis points, to 5-6 per cent (in value terms) annually through fiscal year 2021, compared with 8 per cent in the three years through fiscal year 2019.

Small and medium enterprises (SMEs) — which account for nearly 75 per cent of the 30,000-odd registered plastics processing units in the country, with Mumbai and Chennai among the big clusters — are expected to be hit particularly hard. 

Weak demand from automobiles, coupled with moderating demand from consumer appliance and household segments, is expected to impact revenue growth in the current fiscal year. Realisations are expected to shrink, too, accompanied by a drop in prices of raw materials such as polyethylene and polypropylene.

Added to this is the sharper focus of the central and state governments on moving away from single-use plastics, which is expected to impact the revenues of SMEs. 

 

The Centre had earlier announced a nationwide ban on single-use plastics effective October 2, 2019. However, later — following objections of industry over non-availability of ready alternatives — it decided to phase out single-use plastics by 2022. However, several public and private organisations, as well as state and central government departments, have banned single-use plastics already, with some states (Maharashtra, Odisha, Goa and Andhra Pradesh) implementing the ban.

Added to all this, intense competition in this highly fragmented industry is expected to put operating margins under pressure.