Tighter energy standards threaten to reduce urea makers’ margins by up to 25%, prompting a structural reset, while higher gas prices offer some relief amid ongoing geopolitical tensions affecting fertiliser supplies.
Tighter energy rules are set to squeeze urea makers’ margins, with Crisil estimating that profitability could fall by about 25% to roughly Rs 1,250 a tonne, though higher gas prices may soften the blow by Rs 75-100 a tonne this fiscal year. The rating agency said the hit will be uneven, with the steepest pressure likely on companies most exposed to legacy urea plants and the energy savings they have historically been able to keep.
India’s urea industry is split between older plants and units built under the New Urea Policy 2012. Crisil said the newer plants, which account for about a quarter of capacity, are protected by an assured 12% return on equity until the policy period ends. By contrast, legacy plants depend heavily on subsidies, which make up 80%-85% of their revenue, and their fixed-cost reimbursement has not kept pace with rising expenses.
That has left operating performance increasingly tied to energy efficiency. The government has repeatedly tightened energy standards in an effort to improve sector productivity, most recently through a cut in the composite norm from about 5.77 gigacalories a tonne to 5.67 gigacalories a tonne from April 1, 2025. Crisil said that under the earlier benchmark, efficiency gains were worth nearly Rs 1,300 a tonne, but the new standard is likely to reduce that benefit and force what it described as a structural reset for older plants. The agency also said any further revision in fixed-cost reimbursement could help cushion the impact.
Crisil’s latest comments come against a wider backdrop of pressure on fertiliser supplies from Middle East tensions. In March, the agency said domestic fertiliser production could fall 10%-15% if disruptions persist, although government gas allocation and inventories may limit near-term shortages. Earlier reports from the same agency also pointed to falling import dependence as domestic production expands, suggesting the sector remains supported by policy even as profitability becomes more sensitive to energy costs and subsidy design.
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