Recycling: Turning Waste Into Opportunity (Part II)

January 18, 2024 | Deep Dives, Market Talks

In the previous blog, we touched upon the favourable economics of recycling, highlighting the potential savings associated with using recycled materials. In the current blog, we will discuss more about the recycling industry and how we can shift our investing gears towards an investment opportunity. We have identified three distinct industries within this sector that we will be discussing in the current blog: Plastic Packaging, Lead and Tyre Industry.

There have been regulatory changes happening across various industries. Extended Producer Responsibility (EPR) India is one such initiative that aims to place responsibility on producers for the proper disposal of waste and extend their responsibility to the post-consumer stage of a product’s life cycle. Let's have a look at EPR policies in different industries:

Now we will discuss how these rules are going to benefit each recycling industry. Let’s start with

1. Plastic Packaging Recycling

Bottle producers had no incentives or penalties involved to use recycled material, but now, with EPR implementation, the plastic recycling industry is set to grow. The use of recycled plastic was prohibited in food contact applications, but in 2022, the Food Safety and Standards Authority of India (FSSAI) issued a direction, that permits the use of recycled plastics (food-grade rPET) as food packaging. Many brands, like Coco-Cola and Pepsi are already committing to using rPET for their packaging. Overall PET bottle market is expected to grow by 6.1% CAGR and the estimated derived demand of the rPET market arising because of EPR rules is expected to grow at a CAGR of 17.52%.

Opportunity in Fashion Industry
In India, recycled yarn was considered only if it was more economical. Things have changed for good in last few years, and there will be a higher demand of recycled materials in the future, due to the following:

Implementation of EPR policy will lead to higher usage of recycled materials.
Growing sustainably is on the agenda of almost all corporations and brand owners.

To produce the popular Nike Air shoes, the company is able to reuse more than 90% of the waste generated from Air shoe manufacturing, often turning it into new Air bags sole. This ensures all Nike Air soles are made with at least 50% recycled material. Likewise, other brands like H&M, Zara, Under Armour etc. have also set sustainability targets. For these companies, using recycled polyester is one of the easiest ways to achieve those targets.

GANESHA ECOSPHERE LIMITED

The company is the largest PET bottle recycling company in India, having 30 years of experience and a domestic market share of 16%. It is into the manufacturing of Recycled Polyester Staple Fibres (RPSF) and rPET Yarn. Revenue mix : 85% - RPSF and 15% - rPET Yarn.

Why can Ganesha Ecosphere Limited grow well ?
After the Government approved bottle to bottle (B2B) recycling for food-grade applications, Ganesha Ecosphere grasped the opportunity with both hands and entered into the segment of manufacturing rPET chips used in making recycled bottles. This will create an additional revenue stream for the company. According to a survey, 60% people in India are willing to pay a premium for sustainable fashion products. To further address this opportunity, the company introduced branded and non-commoditised value-added products under the new ‘Go Rewise’ brand. The EPR policy and other government regulations along with increasing awareness towards sustainability will help the company grow well.

2. Lead Battery Recycling

Opportunity for Lead Recycling Industry
Primary lead scrap that is discarded causes huge environmental damage and pollution. However, recycled lead uses only 30-40% of the energy required to extract primary lead from its ore. Lead as a commodity can be remelted and recycled an infinite number of times without any loss in its properties. Therefore, a lot of industries prefer recycled lead over primary lead. The recycled lead is primarily consumed by Lead-Acid Battery manufacturers followed by other industries like Glass, Ceramic, Pharmaceuticals, Paint, etc.

The lead recycling formal segment occupied only 35% of the lead recycling market in India till FY22. However, with the growing government’s measures to strengthen regulations and enforce strict standards, the formal segment share in the lead recycling market is expected to rise to 75% by FY26. Also, as per various studies, the increase in lead demand will be fuelled by recycled lead and demand for primary lead is expected to remain the same. With organisation of the lead recycling market, top existing players in the lead recycling industry have the potential to become industry leaders.

Gravita India Limited

Gravita India Ltd is one of the largest lead producer in India, established in the year 1992, with a market share of ~18- 19% in the organised lead recycling.
Revenue Mix: Lead Recycling (84%), Aluminium Recycling (9%), Plastic Recycling (6%) and Turnkey Solutions (1%)

Why can Gravita India Limited grow well ?
The attractive shift to the formal sector presents an opportunity for organised recycled lead players like Gravita India Ltd. because it already has 18% market share in the organised sector. PAN India presence and plants near port reduces logistic cost for Gravita. Scraps procured overseas are cheaper than scraps procured in India. Its deep presence in Asia, Africa, Middle East, Europe and America ensures raw materials are available at competitive prices.

3. Tyre Recycling

Opportunity for Tyre Recycling:
India is amongst the world’s largest manufacturer of reclaimed rubber. Reclaimed Rubber is one of the most prominent material made from waste tyres. Out of total rubber content in tyre, currently 3-4% is reclaimed rubber. Due to rising awareness regarding potential saving and eco-friendly alternative, the reclaim rubber demand is already increasing.

Reclaim Rubber has the highest weightage for eligible quantity for EPR certificates.
Several tyre manufacturing companies like Bridgestone, Michelin, Continental and Pirelli across the globe have sustainability targets that envisage higher use of recycled rubber. Indian tyre companies like Apollo, JK tyre and CEAT, following in the footsteps of global peers, are also progressing towards higher usage of recycled rubber

GRP Ltd.

GRP Ltd. is one of the top three manufacturers of reclaimed rubber globally and the largest in India. The company claims to have an 18% domestic market share and accounts for 50% of India’s exports of reclaimed rubber. Company has the following segments :

Reclaim Rubber (~90% )
Non-Reclaim Rubber (~10%)
- Engineering Plastic
- Polymer Composites
- Custom Die Forms

Why GRP Ltd. can do well ?
With the introduction of EPR policy, the current 3-4% reclaim rubber content is expected to move up to 7-8% for meeting recycling targets for producers pushing the overall reclaim rubber demand. Around 70% application of reclaimed rubber is for tyres and tubes. Inherent growth of automobile industry along with increased percentage usage is going to help increase the demand of reclaimed rubber.

Niveshaay’s Scuttlebutt
We visited India’s biggest plastic industry exhibition held at Pragati Maidan, Delhi in February 2023 organized by the Plast India Foundation. The exhibition marked the presence of around 1500+ exhibitors, both domestic and international, from countries like USA, Australia, UK, Switzerland, UAE, Germany, and Austria covering every part of the plastic product supply chain. There was one hall completely dedicated to the recycling segment.

Few takeaways from the visit:

There is quite an increase in awareness among brand owners regarding the increased usage of recycled content in their finished products.
The trend of sustainability was very much on the minds of a lot of plastic film players, rubber recycling, and plastic granules used in automotive segments.
The overall trend of being ESG compliant is increasing.

Disclaimer:
Investment in securities market is subject to market risks. Read all the related documents carefully before investing. The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy / sell any security or financial products.

Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the intermediary or provides any assurance of returns to investors. The securities quoted are for illustration only and are not recommendatory.

Disclaimers and Disclosures

SEBI Registration No. :INH000017338, IN/AIF3/24-25/1571, IN/AIF2/24-25/1607 | BASL Membership ID: 6276

Investment in Securities Market are subject to market risks. Read all related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.