India’s urea industry to drastically cut import dependency

India’s urea industry is poised to sharply reduce its reliance on imports, thanks to new production capacities stabilizing under the New Investment Policy 2012, significantly enhancing domestic self-sufficiency.

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India’s urea industry is set to significantly reduce its import dependency, decreasing from around 30% in fiscal 2021 to an expected 10-15% in the near to medium term. According to a CRISIL Ratings report, this shift is driven by the commencement and stabilisation of new production capacities. Urea currently accounts for about 55% of India’s chemical fertiliser demand.

These new urea plants, initiated under the New Investment Policy 2012 (NIP 2012), are expected to operate at nearly full capacity this fiscal, improving from 85-90% last year. CRISIL noted that another plant is likely to come online by the next fiscal, further boosting domestic production. The profitability of these new plants remains strong due to a minimum committed return on equity of 12% under NIP 2012.

For the rest of the industry, which constitutes around 75% of the capacity, profitability is expected to remain stable. This stability is attributed to steady natural gas prices and unchanged policy norms on energy efficiency and fixed-cost reimbursements. Working capital cycles are also expected to remain stable, supported by government subsidies, which make up 80-85% of urea sales.

The government’s budgetary allocation of Rs 1.19 lakh crore for urea subsidies this fiscal is deemed sufficient, ensuring no significant build-up of subsidy receivables. Timely disbursement of subsidies, as seen in recent years, will support the industry’s credit profiles. With minimal capital expenditure, net leverage is expected to stay comfortable at around 3.0 times, similar to the previous fiscal year.

CRISIL also highlighted that the potential rise in nano urea adoption could accelerate India’s path to self-sufficiency in the medium term. However, the impact of possible policy changes, such as tighter energy norms, on profitability remains a key factor to monitor.